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How Will China’s Secret Oil Reserves Impact Global Oil Stocks?

How Will China’s Secret Oil Reserves Impact Global Oil Stocks?

The Organization of the Petroleum Exporting Countries (OPEC) has been  “stabilizing,” another word for manipulating, the oil market by calling on the oil-producing countries to abide by an output cut. 

But apparently, China’s secret crude reserves will have an impact on the organization’s next move. 

“China’s state-and-commercial-owned oil stores will help the Organization of the Petroleum Exporting Countries and other major producers determine whether to continue their supply cuts or open the taps wider again, say some officials from the cartel,” writes The Wall Street Journal. “Those cuts sent the oil price surging as inventories fell, and Russia and Saudi Arabia now want to boost production. But some signatories to the 2016 pact to cut supplies say that China’s huge and opaque store of oil needs to be taken into account after being ignored for years, according to OPEC officials.”

China does not release data on the size of its reserves, but according to the estimates by the oil-data company Ursa Space Systems Inc., the country’s reserve and commercial stocks have risen by 130 million to 930 million barrels in the past year.

According to the International Energy Agency, Chinese crude oil stocks spiked by 13.7 million barrels in March from the month before. 

The country imported 9.64 million barrels in April, according to data by the Beijing-based General Administration of Customs.

“Refiners, especially teapots, are restocking ahead of the Shanghai Cooperation Organization meeting when road transport of hazardous petrochemical products will be presumably curbed,” said Jean Zou, an analyst with commodities researcher ICIS-China to Bloomberg. 

But it’s unknown what China will do with the oil. If China doesn’t sell the oil on the open market, then the massive reserves won’t impact global pricing. 

“We used to focus on [industrialized-nations] stocks. But now we are looking at China too,” said an OPEC official to the WSJ. 

But China isn’t the only competing country the OPEC needs to worry about. The U.S. is also ramping up oil production.

Author’s note: If China gets into the global open market then it could temporarily crash the oil prices and would be a real problem for Saudi and other OPEC countries. But China’s consumption is increasing and they are still a major importer, even though they have vast reserves. 

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