China To Keep On Keeping On

The amount of oil in the US petroleum reserve appears to have peaked and has actually been slowly been decreasing over the past few weeks. Despite a few new gulf rigs coming online, US oil production remains flat. But OPEC is still producing at record levels and there is still a global surplus, so where is all this extra oil going? To the same place it has been going for the past two years. China. It has long been known that China has spent the last two years using cheap oil prices to rapidly building their reserves from almost nothing, to several hundred million barrels. But there has always been secrecy about it. And a fear that they would declare themselves full and stop adding to it, creating an out of control glut. It was assumed that once they hit around 500 million barrels, they would be done. It now appears that they are far from it.
The tanks they have been using all have a floating roof design. Using satellite data and tracking the shadows in the tanks, the west has been able to figure out what China is actually up to. And its kind of surprising. They have way more oil than anyone gave them credit for. An estimated 600 million barrels in surface storage. Plus an unknown amount that is stores in caves underground. But that is not all. They are not anywhere near full capacity. From what was spotted, China has a current storage capacity of some 900 million barrels. Potentially double what the US keeps. They realized that oil is at a price far below what it should be, and have been using this deflated price to buy as much as possible for years. They have even cut domestic production way back. It is really impressive that they were able to buy this much yet not tip off the markets or cause the price to spike. It will be interesting to see what they do in the years ahead. If they will just draw on these stockpiles when the price spikes, or use it to make the market appear flooded while they gobble up cheap futures contracts. That is an absurd amount of oil, and if China has ever proved anything, it is that they will do what they can to make a buck.