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IEA Sees China, India Filling Strategic Reserves With Cheap Oil

by Javier Blas

5:12 AM EDT March 13, 2015

(Bloomberg) -- China and India are set to fill up their strategic petroleum reserves this year, taking advantage of lower oil prices, according to the International Energy Agency.

The two nations are building emergency stockpiles with millions of barrels of crude that mirror the reserves of oil and refined products that the U.S. and its western allies amassed after the first oil crisis of 1973 to 1974.

“Cheaper oil facilitates the building of strategic reserves,” the Paris-based IEA said on Friday in its monthly oil market report.

The purchases, if confirmed, will add to global oil consumption growth, the IEA said, offsetting “current weak fundamentals” of supply and demand and potentially boosting prices. Brent crude, a global oil benchmark, has fallen 47 percent over the past year to trade at $57.03 a barrel at 8:53 a.m. in London.

“Since oil prices began their rapid retreat last June, the import bills of oil-importing economies have declined,” the IEA said. “This has assisted governments in many of these countries in either adding to their strategic reserves or putting in place firm budgetary provisions to increase oil holdings.”

The energy watchdog said China was “expected to again stockpile crude in 2015” as it completes new tanking capacity. Beijing in November for the first time revealed details of its oil stockpiling program, saying it held about 91 million barrels in four different locations. The U.S. holds 696 millions barrels of oil in its emergency reserve, the largest in the world.

Indian Storage

India has yet to start storing crude oil, but the IEA said the government has approved a $338 million budget to cover the filling of its first emergency tanks this year. At current prices, that would amount to 6.5 million to 7 million barrels of crude. The Indian Strategic Petroleum Reserves Ltd., the company in charge of the stockpile, has already built a tank farm in eastern India capable of holding 10 million barrels of crude. Another two facilities in western India are expected to be completed by the end of the year, adding a combined 28 million barrels of capacity.

The IEA, adviser to 29 oil-consuming nations, said Vietnam has also used lower oil prices to boost its commercial stockpiles held at refineries.

China and India have said in the past they need to build strategic reserves to offset the risk of a disruption in supplies, mostly from the Middle East and North Africa. Western countries have used their strategic reserves only three times over the past 35 years, during the first Gulf War in Iraq in 1991, after hurricane Katrina in 2005 and in 2011, after the start of the war in Libya.

http://www.bloomberg.com/news/articles/2015-03-13/iea-sees-china-india-filling-strategic-reserves-with-cheap-oil