APPEC: Chinese government set to build crude reserve, support imports in 2025

China is set to build strategic petroleum reserves over the rest of the year and through at least the first quarter of 2026, which will enable the world's top crude importer to sustain inflows amid weakening oil demand, several Chinese sources with state-run oil giants told Platts on the sidelines of APPEC 2025 in Singapore on Sept. 8.

"The government has recently asked us to build up the stocks. Resource security is the priority for China, stockpiling not only petroleum, but also minerals, grain, medical supplies," said one of the sources, who was not willing to be named.

A second source added that China relies on imports for 70% of its crude supplies, resulting in the need for continuous stockpiling even though the country's petroleum liquid demand is expected to peak in 2027.

The comments came as OPEC+ agreed to increase output by 137,000 b/d in October as a group of key producers within the bloc signaled they would begin unwinding a second tranche of production cuts of 1.65 million b/d.

Given this backdrop, market sources said China's appetite is crucial to sustaining fundamentals, or at least slow down an expected drop in prices.

Recent industry discussions suggest that the country's stockpiling activities have helped sustain elevated price levels, despite potential oversupply in other regions, said Saad Rahim, chief economist at Trafigura, during a panel discussion at APPEC.

A third source said the procurement of crude reserves would be notable when oil prices fall below $65/b and stepped up when below $60/b.

At 10:39 am London time (0939 GMT) on Sept. 8, the ICE November Brent futures contract was up by $1.23/b from the previous close at $66.73/b, while the NYMEX October light sweet crude contract rose $1.18/b from the previous close to $63.05/b.

China imported 11.34 million b/d of crude oil over January-August, up 2.9% year over year, data from the General Administration of Customs showed.

Inventory hits fresh high

With the imports, the country's crude inventory, including commercial and strategic petroleum reserves, hit a fresh high of 1.23 billion barrels in August, according to data from Ursa Space.

In the first half of the year, inventory builds were more likely for commercial purposes, especially for the independent sector to store sanctioned crudes amid sanctions uncertainties, market sources said.

For the rest of the year, Chinese sources said a new phase of storage capacity will be ready for additional barrels, although they did not disclose the volume that the government would take for stockpiling.

"There are inherent uncertainties surrounding the entire Chinese SPR program, although we have raised our estimates to 100 million barrels from 70 million barrels initially," said Sun Jianan, a senior analyst with Energy Aspects.

China has stopped providing statistics about its SPR since the latest data showed 276.6 million barrels were held at the end of 2017. According to data from Ursa Space, the SPR was about 213.19 million barrels in August compared with 212.2 million barrels in July.