Why is China stockpiling so much oil?

The big question troubling the energy market now is why China is stockpiling so much oil. In problem-solving, the principle of Occam’s razor recommends searching for the simplest explanation. So, perhaps the answer is as straightforward as “because it’s cheap.” Still, the conspiracy theorist in me says there is more to it. China has purchased more than 150 million barrels — costing about US$10 billion at current prices — above its actual use so far this year. For a country that buys more electric vehicles than anywhere else, that demands dissecting.

The stockpiling was exceptionally high during the second quarter, when the International Energy Agency estimated that China absorbed over 90 percent of the global stockpiling we can measure. That has helped support prices this year, and with the oil market forecast to move into a huge surplus, whether China continues its buying spree — and for how long — is crucial for next year. 

Here, we should admit what we do not know. At the annual Asia-Pacific Petroleum Conference last week in Singapore, oil traders agreed only that China has the capacity to store more crude. Beyond that, “nobody has a crystal ball about the duration of Chinese buying for its strategic storage,” said Ilia Bouchouev, a former oil trader and now a senior research fellow at the Oxford Institute for Energy Studies.

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