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Page added on June 4, 2015
China is hoarding cheap oil in a fleet of supertankers
As Middle East oil producers drive prices lower and make life difficult for the U.S. fracking industry, one clear winner is emerging: China
The world’s second-largest economy become the top oil importer in April. The key reason? China is taking advantage of cheap oil to boost its strategic reserves.
“They’ve been building out strategic storage. The goal is to build out to about 500 million barrels, compared to the U.S. capacity of 700 million to 800 million barrels,” said Jeff Brown of Singapore-based energy consultants FGE.
Brown said that while the numbers are a little murky, China has already built out about 150 million barrels of extra storage, with more capacity planned through the end of the year.
“They take a lot of pride in buying oil when it’s cheap,” he said.
Despite the massive capacity boom, China is still buying more oil than it can store — and all that crude has to go somewhere.
The solution lies in the Strait of Malacca. At anchor just a few kilometers off the coast of Malaysia lies the TI Europe, brimming with about 3 million barrels of oil destined for China.
This 440,000 tonne monster is the world’s biggest tanker. She has been leased by the China’s state owned oil company at an estimated cost of $40,000 a day, to store oil until it can be shipped to China in smaller vessels.
And she’s not the only one. Oil tanker analyst Richard Matthews of Gibson Shipbroking in the U.K. says there has been a surge in the number of supertankers being leased for storage.
“Normally, excluding Iranian ships, you might see only two or three ships storing, and they could be supporting offshore projects,” he said. “Now there are up to 17 or 18 non-Iranian tankers.”
Supertankers can also be used to store oil in a market where the future price of crude is expected to be significantly higher than the current price.
Speculators buy cheap, bear the huge cost of storage and finance, and still make a profit when they sell a few months later.
But analysts say that, for now, the difference between the current and future price is not wide enough to rake in speculative profits, which points to China filling its boats.
China could also turn to land facilities for storage, mainly in South Africa. But the Strait of Malacca has an advantageous location, situated halfway between the big oil producers and the Chinese mainland.
Even as China builds out and fills it strategic oil reserves, consumers continue to gobble up fuel. Much of the demand comes from motorists, who are in the middle of a love affair with gas-guzzling SUVs. In the first three months of the year, sales of SUVs soared an eye-watering 48% in China over last year.
Neil Beveridge, senior oil analyst at Sanford C. Bernstein in Hong Kong, said that oil consumption in China has remained steady at around 10 million barrels a day over the past few months, despite slower economic growth of nearly 7%.
The good news for Chinese drivers is that the price of oil shouldn’t rise much higher. In fact, it is more likely to fall, at least in the short term.
“We think the market is way oversupplied right now,” said FGE’s Brown. “We expect in the next few months a big pullback and oil could drop below $50 a barrel again.”
15 Comments on "China is hoarding cheap oil in a fleet of supertankers"
Plantagenet on Thu, 4th Jun 2015 6:58 pm
Buying up cheap oil during an oil glut is smart. But you’ve got to get your timing right— if oil prices fall even lower, then China’s gamble will go bust.
Makati1 on Thu, 4th Jun 2015 7:13 pm
Is the EofC refilling it’s strategic reserve with cheap oil or is it waiting until the price goes up?
BobInget on Thu, 4th Jun 2015 7:29 pm
Since when is it naughty to buy stock items on sale?
While 7% economic growth is slower then 10 or 12%, it’s almost double USA’s 3.2%
India BTW, grew at 6.5% all but making up any difference.
Below is the sort of propaganda that speaks loudly about a current short position of FGE.
To be short (oil) at this time in history is suicidal.
““We think the market is way oversupplied right now,” said FGE’s Brown. “We expect in the next few months a big pullback and oil could drop below $50 a barrel again.”
I’ll call it the ‘one thousand to one shot’.
KSA drops a thousand (more like ten thousand) bombs on Yemen.
What are the odds Yemen, won’t
land a single, MIRVD multi targeted missile or human smart bombs on Saudi Choke point(s)?
Would you characterize America’s Petroleum
Reserve as Hoarding? Oversupply?
Try two months with limited Mid East imports.
Then, I’ll ask again.
Oil could go back to $50. I’ll ask, for how long?
Davy on Thu, 4th Jun 2015 8:13 pm
Sure Bob, China’s growth is 7%. You take the Chinese ministry of propaganda at face value. China’sdistilled growth rate is likely 1/2 that amount. The issues is complexed and Murky like everything else Chinese.
Nony on Thu, 4th Jun 2015 8:13 pm
contango trade.
BobInget on Thu, 4th Jun 2015 9:28 pm
Nony cryptically brings up ‘contango’ trades.
Just so we are on the same page;
Wikipedia:
Contango is a situation where the futures price (or forward price) of a commodity is higher than the expected spot price.[1][2] In a contango situation, hedgers (commodity producers and commodity users) or arbitrageurs/speculators (non-commercial investors),[3] are “willing to pay more [now] for a commodity at some point in the future than the actual expected price of the commodity [at that future point]. This may be due to people’s desire to pay a premium to have the commodity in the future rather than paying the costs of storage and carry costs of buying the commodity today.”
The opposite market condition to contango is known as normal backwardation. “A market is ‘in backwardation’ when the futures price is below the expected future spot price for a particular commodity. This is favorable for investors who have long positions since they want the futures price to rise.”[2]
As we see ‘contango’ has zero to do with a KSA/Iran war, hot or cold.
Contango has nothing much to do with oil wars in general. Oh, it did at one time, no more.
This is why fundamentals today, are almost meaningless.
We can talk futures or drill rigs down or up, storage, crude, sweet or sour, until the US pumps, at minimum, double todays’ ten million barrels, all that really matters is securing oil imports. This exactly why Americans are bombing Syria, Yemen, Iraq, Sudan, in a UNDECLARED (by Congress) war,
These wars are being fought by Americans not for religious reasons but to defend ‘our’ oil.
Perk Earl on Thu, 4th Jun 2015 11:24 pm
How much does a supertanker cost? It holds at most 2 million barrels, which China could use in less than a day. That sounds like energy insecurity on steroids.
Davy on Fri, 5th Jun 2015 3:28 am
Makster, who’s side are you on anyway? Your wonderful super hero China is being called Nazi by your President Benigno Aquino. Looks like things are not so peachy in your beloved Philippines and Asia. Is war ahead?
http://www.zerohedge.com/news/2015-06-04/philippine-president-compares-china-nazi-germany-beijing-tells-him-repent
BobInget on Fri, 5th Jun 2015 10:03 am
Zero Hedge is a warmonger. Flashy headlines attract readers, then sponsors.
Makster is in no position to reply. I’ll try.
China has been corralling oil assets around the world for the last fifteen years.They say, few people pay attention to events until they themselves are touched by an event tragedy.
President Aquino,in attempting to attract military assistance to hold off China, resorts to
silly early 20th century name-calling.
Frankly, most folks who lived through WW/2 are
quite dead. Hitler is just the name of some ‘bad guy’ from the past. There are plenty of contemporary Evil Bastards around today but
President Aquino dare not offend them.
The real truth here, Zero did not mention, China
knows, everybody knows, there’s a lot of oil under those tiny islands. It simply won’t do mentioning oil. Doing so only make oil more valuable. Don’t talk about conflict oil unless it’s absolutely necessary in Iran or Iraq or Syria or
Yemen or Sudan or Libya or Nigeria or……
Oil Wars South China Sea is yet another example of another resource grab. Get used to it.
penury on Fri, 5th Jun 2015 11:00 am
China hoards oil. The U.S has a Strategic Reserve. The bad news for the U.S. is that if China has an oil problem, the U.S. has an import problem. There may be oil under the islands, so what, Who is going to produce the oil? Do we want the S.Pacific to turn into another M.E.? Follow the money. What are the apparent long term goals for the U.S.?
Makati1 on Fri, 5th Jun 2015 7:41 pm
Davy, he is not my Aquino, he is a puppet of Washington and not very intelligent obviously. About like a mouse teasing a hungry cat. But then, so is the US as they try to foment another world war. This time the US will lose as will you when it come in the form of missiles and bombs to America. Or maybe just the death of the dollar, if you are lucky.
The race is on to see if the dollar can be sidelined before the missiles fly or if that collapse will push the button. Either way, the Empire of Chaos will be dead and the US will be a 3rd world country at best. I’m not happy about that, for my family’s sake, but it is what I see coming.
There will be no place on the planet NOT affected when it happens. But at least, the Ps is not a threat to China militarily or economically. At best it will become a Chinese colony. Most of the large corporations and banks here are already owned by Chinese or Chinese/Filipino families. Not much would change for me. I’m too old to be a threat.
Davy on Fri, 5th Jun 2015 8:27 pm
Copy and paste Makster’s vocabulary:
missiles and bombs to America
US will lose
death of the dollar
Empire of Chaos will be dead
US will be a 3rd world
How about that vocabulary of hate and resentment folks. Makster is a true propagandist of hate and resentment.
Makster, please take this test and get back to me:
http://vistriai.com/psychopathtest/
OK, Mak so I take it you are pro Chinese because you advocate the Philippines becoming a colony of China. I bet your buddies you hang with by the pool would blow a roid if they heard that. The Pilipino people are proud Mak and you just spit in their eye. What a guest you are.
Makati1 on Sat, 6th Jun 2015 9:42 pm
Davy, does reality interfere with your delusions?
Apneaman on Sat, 6th Jun 2015 10:41 pm
I’m far from a rally around the flag person, but let’s not forget the regular men caught up in history who did the hard thing on this day back in 1944.
GregT on Sat, 6th Jun 2015 11:13 pm
Hear hear Apnea. I’ll raise my glass to that.