Shotgunner51
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September 17, 2015 12:00 am JST
China's outsize crude imports throw traders for loop
NATSUKI KANEKO, Nikkei staff writer
China's crude oil imports rival those of the U.S.
TOKYO -- China's unexpectedly strong appetite for crude is adding to the confusion of an already volatile oil market.
The slowing Chinese economy has raised concerns of a decline in oil demand, which in turn pushed down crude futures. But a look at the spot market shows that China has been importing massive amounts of the resource from the Middle East. In addition to making oil prices even more difficult to predict, this beefed-up buying is also raising questions about the country's ultimate game plan.
China National United Oil, also known as Chinaoil, began its buying spree at the start of the year. In August, the trading arm of state-run China National Petroleum purchased a record 72 cargoes of oil, about 36 million barrels, on the electronic trading platform for Dubai crude, a benchmark for Asia. Chinaoil accounted for 90% of contracts settled on the overall Dubai spot market in that month.
Under its president, a former trader who took the helm in 2014, Chinaoil has been ramping up its trading abilities in various ways, including making improvements to its trading platform.
Long-term goal?
China imported nearly 7.3 million barrels of oil per day in July, a 30% jump on the year. Imports for the January-July period were up 10% from a year earlier, and it is becoming increasingly likely that China will top the U.S. as the world's biggest oil importer this year.
So why is China maintaining a long position on crude despite growing concerns over its economic slowdown? Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp. (Jogmec), said China is likely taking advantage of low prices to build up its strategic oil reserves.
According to Barclays of the U.K., China has been stockpiling 100,000 barrels of crude oil every day since the beginning of the year. That figure could rise to as much as 170,000 barrels in the second half of the year, which would take China's oil imports for all of 2015 to nearly 250 million barrels.
China has long been frustrated by the structure of the crude market, which is controlled by major resource companies and trading houses based primarily in Western countries. According to a crude oil trader at a major trading house, the strategy among Chinese companies is to increase their share of trade on the spot market in order to gain greater influence in setting prices in the long run. The country also plans to open an oil futures market to boost its presence in global commodities trading.
In addition to low prices, deregulation is also driving Chinese demand. The government has begun to allow smaller refiners to import crude, a move that could push up imports by 450,000 barrels a day, according to Citigroup of the U.S.
Reversal
Massive buy orders from China briefly pushed the Asian benchmark above its international counterpart, Brent crude, and market observers have said prices of Dubai crude are out of step with actual supply-demand conditions.
The Brent spot price was more than $4 higher than that of Dubai crude in January. But at the end of July, the Dubai price was briefly the higher of the two. In August, the spread was less than $1.
"Chinaoil's purchases don't reflect real demand," said an official responsible for procurement at a Japanese oil wholesale company, adding that crude prices are, in a sense, being manipulated.
China's outsize crude imports throw traders for loop
NATSUKI KANEKO, Nikkei staff writer
China's crude oil imports rival those of the U.S.
TOKYO -- China's unexpectedly strong appetite for crude is adding to the confusion of an already volatile oil market.
The slowing Chinese economy has raised concerns of a decline in oil demand, which in turn pushed down crude futures. But a look at the spot market shows that China has been importing massive amounts of the resource from the Middle East. In addition to making oil prices even more difficult to predict, this beefed-up buying is also raising questions about the country's ultimate game plan.
China National United Oil, also known as Chinaoil, began its buying spree at the start of the year. In August, the trading arm of state-run China National Petroleum purchased a record 72 cargoes of oil, about 36 million barrels, on the electronic trading platform for Dubai crude, a benchmark for Asia. Chinaoil accounted for 90% of contracts settled on the overall Dubai spot market in that month.
Under its president, a former trader who took the helm in 2014, Chinaoil has been ramping up its trading abilities in various ways, including making improvements to its trading platform.
Long-term goal?
China imported nearly 7.3 million barrels of oil per day in July, a 30% jump on the year. Imports for the January-July period were up 10% from a year earlier, and it is becoming increasingly likely that China will top the U.S. as the world's biggest oil importer this year.
So why is China maintaining a long position on crude despite growing concerns over its economic slowdown? Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp. (Jogmec), said China is likely taking advantage of low prices to build up its strategic oil reserves.
According to Barclays of the U.K., China has been stockpiling 100,000 barrels of crude oil every day since the beginning of the year. That figure could rise to as much as 170,000 barrels in the second half of the year, which would take China's oil imports for all of 2015 to nearly 250 million barrels.
China has long been frustrated by the structure of the crude market, which is controlled by major resource companies and trading houses based primarily in Western countries. According to a crude oil trader at a major trading house, the strategy among Chinese companies is to increase their share of trade on the spot market in order to gain greater influence in setting prices in the long run. The country also plans to open an oil futures market to boost its presence in global commodities trading.
In addition to low prices, deregulation is also driving Chinese demand. The government has begun to allow smaller refiners to import crude, a move that could push up imports by 450,000 barrels a day, according to Citigroup of the U.S.
Reversal
Massive buy orders from China briefly pushed the Asian benchmark above its international counterpart, Brent crude, and market observers have said prices of Dubai crude are out of step with actual supply-demand conditions.
The Brent spot price was more than $4 higher than that of Dubai crude in January. But at the end of July, the Dubai price was briefly the higher of the two. In August, the spread was less than $1.
"Chinaoil's purchases don't reflect real demand," said an official responsible for procurement at a Japanese oil wholesale company, adding that crude prices are, in a sense, being manipulated.
