Peak Oil News and Message Boards

Given that China has added about 25,000,000 new cars by the end of this year in addition to the 20 million in 2016, 17 million in 2015 and 14 million in 2014 why would anyone think it odd they are building up their petroleum inventory?

China is importing 8.44 MM/bbl/d of crude oil so far this year. Last week the USA imported 7.6 MM/bbl/d. At the same time the USA was maintaining a commercial crude stockpile of 1,750 MM/bbl at the start of 2014 for a total fleet of 256 MM motor vehicles. As of the end of last year China already had 290 MM motor vehicles and their fleet tends to be both younger on average and building at a fast rate compared to the USA. The logical conclusion is China should have a larger petroleum commercial inventory that the USA and it should keep growing along with the size of their ICE vehicle fleet. Just to reach parity with American commercial inventories they still need a very substantial increase in their inventory, more than double where it stands today.

The days when China was a minor players in the world petroleum market passed almost a decade ago, yet somehow the mainstream media remains clueless. As the glut subsides the world of 2018-2020 is going to be a very different crude market situation that we faced in 2010-2014 when fracking was a rapidly growing portion of world oil supply and optimism about future supply was boundless. In three years China has increased their total ICE vehicle fleet 51 Million vehicles and the rate of increase is still going up substantially every year.

If anything logic would tend to indicate China will continue to have a substantial build in inventory for quite some time in the future as they move to accommodate their rapidly growing fleet. What this means for the world economy should be pretty obvious, as soon as the glut dissipates the price of oil is going to jump a substantial quantity. IMO this is going to happen much sooner than the EIA/IEA is predicting because we are already seeing substantial draws on commercial stockpiles in Europe and North America even as the Chinese stocks are growing.

Put that data together and what do you get? The glut is pretty much a done deal, the USA is normally having peak inventory around this time of year in preparation for heating season and YOY total available crude stocks are down substantially from last year on this date. The second week of October 2014 the raw EIA number for this date was 1,828 MM/bbl. Correct with a -30 for the change in calculation method put in place August 2016 and you get 1,798 MM/bbl. Current number from EIA is 1,965 MM/bbl, a difference of 167 MM/bbl of 'extra' inventory. This is a substantial decline from YOY when the number of 2016 was 2,039 MM/bbl or 74 MM/bbl greater than the current number. Traditionally this is the time of year when numbers are climbing but instead we have declined somewhat from the January 2017 number of 2,017. That might not sound like much until you realize we typically grow from January to October by roughly 35 MM/bbl and this year we declined by 52 MM/bbl. IOW the expected number for current levels would have been 2,052 if we had gone through the typical build cycle over late summer in preparation for winter.

Clearly the glut is dissipating even faster than it built up in 2014-2015. We only went down 3 MM/bbl in total inventory from January to December 2016 which is well within the statistical noise but if current trends continue the January 2017 to end of December 2017 numbers will show a substantial decline in total USA crude inventory, quite likely enough to erase all the builds from 2014 and a portion of the build from 2015 as well. That means going into 2018 we will have the lowest Petroleum Inventories we have had in 3 years aka no more glut holding prices down by the end of first quarter.

So enjoy the next six months while it lasts.

Tanada wrote:Given that China has added about 25,000,000 new cars by the end of this year in addition to the 20 million in 2016, 17 million in 2015 and 14 million in 2014 why would anyone think it odd they are building up their petroleum inventory?

Yup. And as thus far, indications are that China's economy is improving recently, so much for the idea that consumers can't afford oil products with crude at $40. Or $60 in fact. And the way things are going and with current global demand forecasts, perhaps $80ish in a year or so. And China isn't even a first world country.