As oil prices sink to five-year lows, China has been providing one of the few supports for the world market with record imports to fill its strategic petroleum reserve.
At least, that has been the conclusion of analysts who have tried to explain a 9.5-percent surge in China's imports of crude oil last year, when economic growth was the weakest since 1990 and domestic demand was relatively mild.
China has been taking advantage of last year's 43-percent drop in world oil prices with imports averaging nearly 6.2 million barrels per day (mbpd), whether its economy needs extra oil or not.
As the price slide accelerated, China's buyers responded by pushing imports to an all-time high of nearly 7.2 mbpd in December, a 13.4-percent jump from a year earlier, Platts energy news said.
Domestic production in 2014 averaged 4.2 mbpd, up a slight 0.7 percent, the Ministry of Land and Resources (MLR) reported, giving China about 10.4 mbpd of crude on hand with minimal exports over the past year.
Estimates of China's oil demand growth last year have ranged from 2.7 to 3 percent, but a precise picture remains difficult because the country does not disclose details of its commercial or strategic inventories.
In December, Platts estimated that China's apparent oil demand averaged 9.99 mbpd in the first eleven months, leaving some 0.4 mbpd in surplus for commercial inventories and strategic reserves.
Last week, Platts said China's available crude supply in December exceeded refinery processing by a whopping 915,000 barrels per day, although the daily rise in inventories for the year averaged about 300,000 barrels.
Estimates of China's demand for refined products like gasoline have highlighted the mismatch with soaring imports of crude.
The consulting group ICIS China said demand growth for oil products slumped to just 1.1 percent, despite nearly a dozen price cuts for fuels last year.
Earlier this month, Reuters reported that China had doubled the volume of oil set aside for its strategic petroleum reserve in 2014, socking away 124 million barrels, or an average of nearly 340,000 barrels per day.
But the country also added 600,000 barrels per day of refining capacity last year and has not reported how much fuel was stored, Reuters said.
Still, China is believed to have set aside major volumes of oil for its emergency stockpile.
Mikkal Herberg, energy security research director at the Seattle-based National Bureau of Asian Research, said China's buying splurge may continue this year.
"My guess is that they wouldn't stop unless they really managed to stock up so much in the next six months while prices are low. Then they decide they don't need to buy when prices start to rise again," Herberg said.
Adding to reserves
The pace of imports suggests that China is getting ahead of its official schedule for building a strategic petroleum reserve (SPR) to cover 90 days of imports in case of supply disruptions, similar to SPR stockpiles in member countries of the Paris-based International Energy Agency (IEA).
The Reuters estimate means that China may have added 20 days of import coverage last year.
China has been working under variations of a three-phase plan to build a 90-day SPR since at least 2004.
In November, the State Council, or cabinet, outlined an energy development strategy that called for completing the second of three phases of SPR building by 2020.
At the G20 summit of major economies in Brisbane, Australia, President Xi Jinping announced plans to release regular updates on China's oil stocks in the interest of transparency.
But official information on the SPR has remained scant.
The National Bureau of Statistics (NBS) said in November only that China has completed the first of the three phases in storage building, bringing operational reserves to 12.43 million tons, or 91 million barrels—far less than reportedly set aside last year.
The progress report was curious, since the National Energy Administration (NEA) had already confirmed completion and filling of the first phase at four coastal storage areas as far back as 2008.
In October, the National Development and Reform Commission (NDRC) said plans had been set for a second phase, but the government did not release locations of the reserve bases, the official English-language China Daily reported.
The statement did little to advance transparency, since the NEA had already announced the mostly-inland locations of eight second-phase storage sites in 2009, according to state media reports at the time.
As China boosts its buying and filling of the SPR, it appears to be reducing rather than raising transparency to keep sellers and other countries in the dark.
"There's a chronic resistance to doing anything that really would be transparent, especially when it comes to the SPR, which is seen in strategic terms," Herberg said.
Last October, Platts cited information from Bernstein Research suggesting that China may be far ahead of its 2020 schedule for second-phase completion.
Western storage sites in Lanzhou and Dushanzi were probably filled with 38 million barrels of oil as long ago as late 2011, said the Bernstein report, while another 59 million barrels were likely added at facilities in western Xinjiang and northern Tianjin last year.
Three other sites with combined capacity for 69 million barrels were expected by end-2014, and another 44 million barrels of storage was scheduled to be ready in southern Guangdong province this year, the report said.
Buying opportunities may be spurring construction, but the effect on world markets is unclear, in part because of sparse information on how much available capacity remains unfilled.
The uncertainty makes it hard to tell when China will stop buying more oil than it needs, potentially leaving an even bigger surplus of crude on world markets unsold.
Analysts estimate that an existing world surplus of more than 1 mbpd will continue for the next six months, the London-based Financial Times reported.
"There's an increment of 1 million barrels per day-plus that just doesn't have a home," Herberg said.
The excess is the biggest factor holding back a turnaround in prices, but the uncertainty over China's buying may hang over the market as an additional weight.
"That would probably slow the recovery in prices, if and when that's likely to come," Herberg said.
In the past, China has also sent mixed signals about the purpose of its SPR, although its goal of 90-day import coverage is now in sync with IEA policies.
Member countries of the IEA have committed to using their strategic stockpiles only in case of supply disruptions and emergencies to stabilize world markets, rather than as a tool for managing markets when prices are high.
But in lengthy debates over the creation of China's SPR, industry and government officials initially argued that the stockpile should be used to keep prices in check.
"This will definitely be used as a mechanism to manage prices," a senior official of state-owned refiner Sinopec told Petroleum Intelligence Weekly in 2005.
It is unclear whether China's SPR stocks have ever been used when prices were high, since the government has not released inventory reports.
By contrast, the U.S. Department of Energy provides detailed information on the 727 million-barrel capacity, locations and status of its SPR.
As of Jan. 16, the U.S. reserve held 691 million barrels, according to data at www.spr.doe.gov.