Daily Management Review

China and India to trim demand for oil in 2017


01/23/2017


Major oil-producing countries are expecting that price for petroleum will grow due to decrease in production, yet decline in dynamics of supplies to China and India can disrupt these plans.



The two major countries are net importers of oil with substantial strategic reserves of energy. However, experts say that rising cost of oil will force them to reduce purchases.

In times of reduced demand in the oil market, completion of the Chinese and Indian reserves was a good and important demand, which allowed keeping oil prices away from total collapse. As a result, however, free volume in storage tanks of these countries have fallen sharply, and further purchases will be limited to an increase in hydrocarbon prices.

Oil industry analyst from BMI Research Christopher Haines believes that China has chosen an attractive strategy for crude oil purchases. ‘The agency has already noticed a slight easing purchases, and we will continue to monitor this factor during the year, says Haines.

According to BMI Research, demand from China and India in 2016 increased global oil demand by an average of 760 thousand barrels per day. Unfortunately, there is no accurate data on distribution of purchases for strategic and commercial reserves. These amounts are equivalent to almost half the increase in world demand for oil in the past year.

Latest data on China's strategic reserves relate to September 2016 when the reserves were filled to 235 million barrels of oil. According to experts, this volume exceeds capacity of the known oil storage tanks. Most likely, China is using commercial storages or tankers, say analysts of Energy Aspects.

China is unlikely to completely abandon increase in inventories. However, even if purchase is reduced by 300-400 thousand barrels per day, it will cause a serious damage to the oil industry.

Besides, accomplishment of OPEC’s goals and other oil-producing countries may hinder sale of oil from US strategic reserves. Earlier in January, the US Department of Energy has announced plans to sell 8 million barrels of oil to raise funds for modernization of strategic reserves.

Against this background, other Asian countries also intend to increase strategic reserves in 2017. Indonesia plans to top up their 25 million barrels of oil, and Nepal is building new capacity for oil products placement.

In the long term, China - one of the largest Asian consumers - intends to at least partially get rid of dependence on oil imports.

This is stated in five-year plan of the State Committee of Development and Reform and the National Energy Administration of China, which was released on January 19, 2017
 
One of the main tasks of China's oil industry is speeding up exploration work to ensure domestic oil supply, accelerate construction of oil pipeline network, as well as development of alternative clean energy sources.

In 2016-2020 years, China will be increasing oil reserves by 1 billion tons (7.48 billion barrels) annually.

As for gas, China intends increase its share in the country’s energy mix to 10% by 2020.

In this regard, gas consumption is expected to grow by 76% to 347 billion m3, of which 220 billion m3 will be produced domestically.

source: bloomberg.com






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