Wednesday, June 17, 2009

China's stockpile boosts oil prices

This is the headline of an article in my local paper. It is an Associated Press article, written by Elaine Kurtenbach, byline is Zhoushan, China.

The funny thing is I cannot find this on the web, neither in (which is the link to the paper), nor in Associated Press, nor when I google the writer's name.

So, I am retyping it here. Trust me, this came from the printed version of The Wichita Eagle, dated June 17, 2009.

China's stockpile boosts oil prices

By Elaine Kurtenbach
Associated Press

Zhoushan, China - One reason behind the rebound in world oil prices lies here on China's eastern seaboard, where tidy rows of immense, squat oil tanks tucked away on an island south of Shanghai, have been filled to guard China's energy security.

Patrolled by military personnel, these tanks in Zhoushan are one of four locations where China keeps its national strategic reserves.

Since crude oil and other commodity prices plunged last year - oil tumbled from $147 last July to nearly $33 in December - China has been rushing to build up stockpiles at bargain prices, economists say. That motive, more than a revival in actual industrial demand, has driven its recent import boom of oil, copper and other metals.

The surge in Chinese demand, along with rising hopes for a global economic recovery, has helped lift the price of oil, which is now trading at around $70 a barrel, and other commodities.

The question is how high prices will go before Chinese buyers - and other investors that have flooded into commodities from other markets - decided to cut back, says Simon Wardell, and oil analyst at IHS Global Insight based in London.

"This market is persisting and it may well persist for a few more months yet, simply on the basis of increased optimism," he said.

China is obsessed with making sure it has enough energy and materials to feed its economy. Authorities plan to build more oil reserve tanks while lining up diverse supply sources, from Brazil to Nigeria and Siberia.

Earlier this month, energy chief Zhang Guobao announced government approval of a second phase of strategic oil reserves that will hold 26.8 million cubic meters of crud oil - bigger than the current reserves of 16.4 million cubic meters.

Ultimately, China aims to have about three months of supply in national reserves. It now has about a month's worth.

Perhaps that is one reason China is importing so much iron ore. Not to build ships, but to build oil storage tanks.

I also suspect China thinks spending their U.S. Dollars to buy oil is a good investment.

I don't know how long it will take China to get up to 3 months supply of oil, but you can be sure once they do the price of oil will go down.

Of course, if their present storage tanks are full, they might quit buying for a while. This would be a smart idea anyway, as it would cause the price of oil to fall back down.

Let's play the guessing game.

I guess oil prices will drop back down to around $55 a barrel by October, and if China does stop buying in the next month, it could drop down to that level by August.

What's your guess?

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