Forget OPEC, China Controls Oil Prices
U.S. shale has taken a lot of headline space recently as the biggest headwind for oil prices and the highest stumbling block for OPEC’s efforts to prop them up by cutting production. Yet, there may be another factor that could bring down oil prices as soon as next year…
China.
China has been building a strategic crude oil reserve for the last decade, but the size of that reserve remains undisclosed, with analysts making estimates based on China-bound cargoes and satellite imaging.
Last year, a Silicone Valley tech company, Orbital Insight, suggested that China may have stored as much as 600 million barrels of crude by May. This was the highest reserve estimate at the time. Since then, the reserve has in all likelihood grown, possibly exceeding the U.S. SPR, which stood at 678.9 million barrels as of August 18th this year.
This year, Chinese crude imports have run at record-breaking rates, with the average daily on par with what the U.S. imports, at about 8 million barrels, the Financial Times notes in an analysis. A lot of these, however, are going into storage tanks, analysts believe, and they warn that soon the tanks may fill up, wreaking havoc on prices and–more notably–on OPEC.
The cartel, Russia and 11 other producers agreed last year to remove 1.8 million bpd from global oil supply in an attempt to raise prices above US$50, with hopes for at least $60. This May, they agreed to extend the cuts to March 2018. Nevertheless, prices have remained largely stable around the $50 mark because of rising U.S. output, which last week jumped above 9.5 million bpd, according to the EIA. Related: Qatar Aims To Ease Its Reliance On LNG Exports
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