China's insatiable appetite for crude is at least one thing oil bulls can count on this year.
The world's biggest commodity consumer may buy 8 per cent more oil from overseas in 2016, taking average purchases to 7.2 million barrels a day, according to the median of seven respondents in a Bloomberg survey including FGE and Energy Aspects Ltd. The country's inbound shipments in the first 11 months of last year increased 8.8 per cent to 6.63 million barrels a day and touched a monthly record of 7.4 million in April, customs data show.
The prospect of China continuing to absorb a glut of supply from overseas will encourage investors holding out for a recovery in oil from the lowest level in 11 years. The nation, which has overtaken the US as the world's biggest buyer on occasions last year, is taking advantage of the two-year slump in prices to hoard crude for emergencies. Demand is further expanding as the government relaxes rules to allow imports by private refiners.
"Growth in China's crude imports is a supportive factor for crude prices," said Eugene Lindell, an analyst with Vienna-based JBC Energy GmbH, who forecast a growth rate of 6 per cent. "It will help tackle the crude surplus seen over the first half year in 2016." Brent crude, the international benchmark, slumped to an 11- year low last month amid speculation suppliers from the Middle East to the US will exacerbate a record glut as they fight for market share.
The Organization of Petroleum Exporting Countries raised production to the highest in more than three years in November and effectively scrapped its output ceiling a month later. Meanwhile, the US ended its 40-year export ban and Iran plans to boost output by about 500,000 barrels a day within weeks of international sanctions being lifted.
China may start four additional strategic petroleum reserves this year, augmenting its existing eight, as part of its ultimate goal of stockpiling enough oil to cover 100 days worth of imports by 2020. The country held about 29 days of supply as of the middle of 2015, according to Bloomberg calculations based on National Bureau of Statistics data.
Crude imports for emergency reserves may double to 230,000 barrels a day this year as new tanks start operating, according to Chi Zhang, an analyst with Barclays Plc in Hong Kong. China stockpiled 26.1 million metric tons (about 191 million barrels) of crude as of mid-2015 at eight SPR sites and commercial storage tanks, the NBS said on Dec 11. The country will build and fill 74 million barrels of SPR capacity this year, according to JBC's Lindell.
"We expect that nearly 200,000 barrels a day of crude oil will be added to inventory in 2016" including strategic reserves, said Wu Kang, a Beijing-based analyst with industry consultant FGE, who gave the median estimate in the survey. "This is one of the major factors determining crude oil imports." Teapot Demand China's independent refiners, known as teapots, account for almost a third of the nation's processing capacity. Thirteen of them have been granted import quotas totaling a combined 55 million tons, or 18 per cent of the nation's annual imports, as the government seeks to promote private investment and boost the economy.
The three teapots with the biggest import quotas have said they'll utilize their permits this year. Shandong Dongming Petrochemical Group, the nation's largest independent refiner by capacity, said it plans to fully use its crude-import quota of 7.5 million tons in 2016, while Panjin North Asphalt Fuel Co and Baota Petrochemical Group said they intend to import 7 million tons and 6.1 million tons, respectively.
Chinese crude imports should rise by at least 1 million barrels a day in 2016, or about 15 per cent, given that the teapots have to meet their quotas or risk losing their licenses, said Virendra Chauhan, an analyst at consultant Energy Aspects. Chauhan gave the highest growth estimate in the survey.
The lowest forecast for China's crude import growth was 3 per cent from ICIS China, a Shanghai-based commodity researcher.