FILLING CHINA'S STRATEGIC PETROLEUM RESERVES

Two-and-a-half years after China began building phase one of its strategic petroleum reserves , new legislation is being prepared to manage and expand China's national reserves and establish mandatory corporate reserves for China's national oil companies. 1 Additional capacity is now under construction and China is expected to steadily increase its strategic reserves over the next decade.

*Filling China's national and corporate reserves is expected to require an average of 100,000 barrels per day (bd) through 2016. Though small compared to China's total crude import, this may constitute a significant addition to China's incremental apparent oil demand.

*However, filling rates could be significantly above average depending on when new reserve capacity comes online. The first potential spike may come in 2009, with a possible filling rate of over 170,000 bd, adding significantly to total world incremental apparent demand.

*While the incremental demand will likely add upside pressure to future oil prices, this growing strategic reserve could also enable China to play an increasingly important role in moderating price spikes and would increase China's sense of security in managing periods of volatility or outright disruption.

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1. See Related Research, China's Strategic Petroleum Reserves Build Up Gradually.

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