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[SINGAPORE] A global oversupply of oil is set to rise as China pauses in the build-up of its strategic reserves and Asian refineries slow crude imports ahead of the spring maintenance season, putting more downward pressure on prices.
China's purchases to fill its strategic petroleum reserves (SPR) had been one of the main drivers of Asian demand since August of last year, with the No 2 oil consumer taking up cheap crude to fill its tanks despite slowing economic growth.
Yet China could pause its reserve purchases soon as tank sites reach their limits and new space only becomes available later this year.
Little is known about China's SPR levels. The government seldom issues data, but its plan is to reach around 600 million barrels, about 90 days' worth of imports. Most estimates put the SPR stocks currently to be 30-40 days' worth.
"I don't think there is much (SPR) space left to fill," a Chinese storage executive said under the condition of anonymity.
In the Zhoushan area of Zhejiang province - site of two SPR bases and major commercial storage facilities - tanks are brimming, the executive said. "They are so full that one VLCC tanker owned by a state refiner has had to wait for almost 15 days to discharge," he said.
Adding to downward pressure is the expectation that Chinese refiners could process less crude oil in the second quarter as demand is dented by tax hikes and an economy growing at its slowest in 25 years.
Thomson Reuters data also shows that Asian imports overall have fallen 5 per cent since peaking in December, when China's purchases hit an all-time high at 7.2 million barrels per day.
In India and Japan, crude imports for the most recent month are down 20 per cent and 11 per cent from a year ago, respectively, mainly due to the approach of the spring refinery maintenance season.
"Asia-Pacific oil ... balances remain in surplus with pressure peaking in April/May from rising crude stocks," consultancy PIRA Energy said in a research note.
Benchmark Brent futures have climbed off of a six-year low hit in January but are still down more than 50 per cent from June last year at around US$53.50 a barrel.
Oil prices started slumping from mid-June 2014 as US shale oil production soared while demand slowed due to higher energy efficiency and deepening economic trouble in Europe and Asia.
US crude stocks are now near 450 million barrels, the equivalent of over two months' worth of Chinese crude imports, and the highest they've been in more than 80 years.