April 10, 2021 [Hellenic Shipping News] China’s crude inventories will stay at relatively high levels in 2021 and beyond as market players ship in incremental barrels to take advantage of the fast-expanding storage capacity, at a time when Beijing is keen to encourage stock building for energy security, market sources and analysts said.

The rise in inventories is taking place despite refiners keeping their feedstock buying plan at modest levels because of high global prices and refinery maintenance. But traders are shipping in plentiful cargoes and placing larger bets on a market that has seen wild price swings since last year.

“It is unlikely that China’s crude inventories will return to pre-COVID levels due to rising storage capacity, while the government is encouraging stock building for energy security,” an official with a storage company in southern China said.

In April, the country’s crude stocks stood at about 933.82 million barrels, occupying 67% of its storage capacity, according to data intelligence company Kpler on April 7. This was just 2.5% lower than the record high of 958.19 million barrels seen in September 2020, and 9.2% higher than the levels seen in the same month of 2020 when China’s stock was rising sharply amid low crude prices.

“Refiners have slowed crude buying for stockpiling during the maintenance season because of higher crude prices compared to last year. But trading houses keep bringing in the barrels to store in tanks and wait for their luck to shine,” a Beijing-based analyst said.

Front-month ICE Brent, which closed at as low as $19.15/b in April 2020 following the spread of COVID-19, recovered to close to $70/b earlier this year. It was trading at around $62.41/b on April 7.

China aims to step up efforts to build and hold relatively larger crude stocks during the 14th Five Year Plan (2021-25) in an effort to strengthen the country’s energy security. As a result, Chinese enterprises are expanding their storage capacity.

The country has at least 1.39 billion barrels of crude storage capacity as of April, according to Kpler.

New storage

S&P Global Platts Analytics expects about 70 million barrels of new commercial tanks to come on stream in 2021, compared to around 100 million barrels of known capacity that came online last year.

Despite China’s rising refining throughput and slower growth in crude imports, S&P Global Platts Analytics expects to see this year a continuation of the implied crude stocks build –- crude available for actual storage capacity filling as well as other uses, in addition to refining runs and direct crude burning.

The country’s implied crude oil stocks were 51.63 million barrels higher at the end of February from the end of December, Platts calculations based on the latest official data showed. But the implied increase in the first two months of 2021 was 62.6% lower than the 138 million barrels implied increase seen in the same period a year earlier.

China does not release official stock or storage capacity data. Platts calculates the country’s net build or draw in implied crude stocks by subtracting refinery throughput data from the country’s crude supply data.

The latter takes into account both net crude imports and domestic production, which rose 2.8% year on year to 889.03 million barrels in January-February, according to data from General Administration of Customs.

Meanwhile, crude throughput jumped 15.2% year on year to 837.39 million b/d in the first two months. China also consumes crude for uses in addition to refining throughput.

Kpler data showed that China’s crude inventories increased by 17.26 million barrels in the January-February period, less than the increase of 26.6 million barrels in the first two months of last year.

The implied crude build is estimated to have gone up by nearly 55 million barrels in the first quarter, and looking ahead, it is expected to see an increase of some 44 million barrels in Q2, according to Platts Analytics.

“The actual flows in and out of storage sites will vary from time and time, with both flat oil prices and changing oil price structures being important factors,” Platt Analytics said.

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