Crude oil inventories in China have accelerated their decline in recent weeks, Bloomberg reported on Wednesday, quoting data analytics company Kayrros.
At this time last year, Chinese stocks stood at 856 million barrels, according to Kayrros, which compiles and analyzes satellite data.
At the start of this month, inventories stood at around 990 million barrels, down from a peak of 1 billion barrels last September, the data cited by Bloomberg showed.
The decline in crude oil stocks in recent weeks is bullish for oil prices as it suggests that the market has accelerated the inventory drawdown.
According to Kayrros, “COVID-19 has accelerated a rebasing of Chinese stocks also led by new storage capacity, new refining capacity, and a renewed focus on import independence and energy security,” co-founder Antoine Halff said.
China’s inventory build last year was initially led by demand after the Chinese lockdowns ended, and then stocks increased because of soaring crude oil imports, Kayrros said in a report.
“China effectively served as a sink for the world’s excess production at a time when other consumers cut back on imports and started drawing down inflated inventories,” the company said.
The expansion of China’s storage capacity and the efforts to have more stocks to ensure energy security has likely reset China’s baseline for inventories at a higher level, said Kayrros, noting that a drop from the current levels—albeit still high—would “likely be more bullish for prices than would have been the case in the past.”
Alongside faster onshore stock drawdowns in China and elsewhere in the world, floating storage has also started to shrink at a faster pace.
Global floating oil storage declined at a fast pace in December as traders sold crude held on tankers in the absence of price incentives to store it, and in order to meet peak winter demand in Asia, analysts and sources at trading firms told Reuters last month.
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By Tsvetana Paraskova for Oilprice.com
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That is why China has been expanding its storage capacity. But this very act has as much bullish influence on crude oil prices as falling oil storage levels.
This is helping reduce volumes of oil stored around the world. The same is also happening in the United States, the world’s second largest economy. This partly explains the recent surge in oil prices along with OPEC+ production cuts and a widening vaccine rollout around the world.
Brent crude oil price is heading towards $60 a barrel in the first quarter of 2021 and is projected to rise further to $70-$80 in the third quarter and average $60-$65 in 2021. Moreover, Global oil demand is projected to recover to pre-pandemic level of 101 million barrels a day (mbd) by the middle of 2021.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London