An excellent article came from Bloomberg today that has touched upon the mystery of the Chinese excess crude, which possibly s being used to build the strategic crude oil reserve. World’s second-biggest consumer of crude oil has been importing more crude than it uses throughout the year and record purchase this year has played its part in price recovery, which dropped to $27 per barrel area earlier in the year. This year, both India and China has emerged as the major driving factors in crude oil demand. Lack of data is what making things mysterious. You can check out the article here, http://www.bloomberg.com/news/articles/2016-08-30/mystery-shrouding-oil-on-chinese-islands-puzzles-crude-markets Below, are the key highlights from the article –

• Though exact data is unavailable but analysts of leading organizations like JPMorgan Chase estimate that China could have been importing 1.1-1.2 million barrels per day of excess crude this year.
• China in 2009, outlined plans of building strategic crude oil reserve, equivalent to 100 days of demand but details of the buildup haven't been made available. According to latest data available, by the end of last year strategic reserve might have reached 180 million barrels.
• According to JP’s calculations the strategic petroleum reserve (SPR) might have reached around 400 million barrels by mid of the year and the investment bank estimates that the storage could become full by August and there could be a drop in imports in September.
• According to another set of analysts from Energy Aspects, more capacities are likely to come online, 150 million barrels by next year. So by their estimates, China’s surplus imports could slow down but not dramatically drop.

Our take is that one of the driving forces in recent times in building up of China’s SPR has been lower oil price and it will be a key determinant in building up of the reserve. However, if these imports decline, it would be a major driver of oil prices as the world again would get stuck with a million barrels a day additional surplus.

WTI is currently trading at $46.1 per barrel and Brent at $2.3 per barrel premium.