China Oil Stockpiling Won’t Lead to Widespread Hoarding, Experts Say
July 24, 2008 - 6:05 PMThe Chinese government is stockpiling oil in advance of the Summer Olympics, but American experts say it is “highly unlikely” that the hoarding is intended to affect oil prices.
Still, it is possible that some local areas in China may be hoarding oil in anticipation of a hike in gas prices after the Olympics are over.
Erik Kriel, an expert with the Energy Information Administration of the U.S. Department of Energy, told CNSNews.com that the Chinese government has been building its oil inventories in advance of the Olympics to have plenty of supply on hand for an expected horde of foreigners – and to meet the demand caused by rebuilding after the earthquake in May that killed thousands.
“But I don’t know if I would have called that hoarding,” Kriel told CNSNews.com.
Unlike the United States, China heavily subsidizes gas prices to encourage economic development. In 2007, the gasoline subsidy cost the Chinese government $22 billion, almost 1 percent of its gross domestic product (GDP).
The result is that gas prices in China have remained artificially low and more constant than those in the United States, hovering around $2.60 per gallon, which is only 9 percent higher than in January 2007. During the same time period, gas prices in the United States climbed nearly 80 percent to $4 a gallon or more.
Hoarding before a price rise has precedent in China, and the experts say prices are due to rise. On June 19, the Chinese government announced an increase in prices of 16.7 percent for gasoline and 18.1 percent for diesel.
According to China Daily, the state-owned suppliers Sinopec and PetroChina jointly announced in March, just before the rise, that some producers and dealers had started to hoard oil amid rumors of the price hike.
Dr. Mark Levine, group leader of the China Energy Group at Lawrence Berkeley National Laboratory, thinks another Chinese price hike after the Olympics are over is likely.
“I think that’s very possible,” Levine said. “They try to keep prices up with international levels, but then they fall behind and they worry about inflation ... They do try to keep up, and they’re overdue to raise their oil prices.”
But the likelihood of the Chinese government hoarding oil to affect world oil prices – the fear of some analysts – is low, according to energy experts who talked with CNSNews.com.
Though China is not always transparent in reporting oil stocks and storage, there is very little evidence that the Chinese government or the state-run oil giants Sinopec and PetroChina are themselves hoarding gasoline, according to Patrick Kilcoyne of the U.S. Energy Information Administration.
“I’m not getting that impression that they’re building up some kind of a huge stockpile,” he said.
Levine agreed. “It’s highly unlikely that the government of China is doing that,” he told CNSNews.com.
But the experts also said that small-scale hoarding is a common practice, where gas stations, refiners, or the importers of oil store excess amounts. The Chinese government has issued warnings against this practice.
But as the Olympics approach, China is actually curbing some energy use. On Sunday, Beijing began a two-month-long mandate on vehicle use to ease traffic pressure and improve air quality. From July 20 until Sept. 20, vehicles with odd and even plate numbers will run on alternate days.
As a result, an additional 4 million people are expected to resort to the Beijing public transportation system.
Kreil added that Beijing was cutting energy usage by 30 percent to clean up the air before the Olympics. That won’t last long, he predicted. Demand will resume.
“If I were sitting in China, I would prepare for higher prices, yes, which means I might hoard oil,” Kreil said.