Economist: China is buying oil. Preparing for confrontation

The Economist saw the build-up of energy reserves in China as a preparation for confrontation. Experts doubt it. They believe that Beijing has chosen a different tactic.

"Over the past two decades, China has absorbed a huge amount of raw materials. Its population became larger and richer, it needed more dairy products, grain and meat. Its giant industries were hungry for energy and metals. However, the economy has suffered in recent years… Logic dictates that the country's appetite for commodities should be reduced, and reduced quickly," writes The Economist.

In reality, the publication notes, the opposite is happening.

"Last year, China's imports of many basic resources broke records, and imports of all types of raw materials increased by 16% in physical terms. Purchases continue to grow, increasing by 6% in the first five months of this year. Given the economic difficulties in the country, this does not reflect the growing consumption. Instead, China appears to be stockpiling materials at a rapid pace — and at a time when commodities are expensive. Policies in Beijing seems to be concerned about new geopolitical threats, not least the fact that a possible future hawkish American president may try to block the most important supply routes to China," the publication continues.

China seems to be preparing for a more hostile environment, The Economist noted. They cite data that oil and gas storage facilities, including LNG, are being increased in the country.

"Meanwhile, oil injection into storage facilities has increased by 900,000 barrels per day since the beginning of the year, according to estimates by the consulting company Rapidan Energy. The filling rate in June was 1.5 million barrels per day, which indicates that it is accelerating. This helped China's reserves approach 1.3 billion barrels, which is enough to cover 115-day imports (the United States owns 800 million barrels)," the publication cites.

At the same time, it recognizes that the accumulation of stocks is rather a defensive measure, since it has not yet reached the scale to ensure security in a hot conflict.

Alexey Grivach, Deputy director of the FNEB, believes that the situation can be explained by a mixture of political disagreements and a low season. At the same time, the creation of additional storage facilities is a logical practice of China. For example, experts have repeatedly noted small UGS facilities in Asia against the background of large capacities in Europe, which gives it seasonal advantages.

"China has a shortage of gas storage capacity, which often led to gas supply disruptions during the season. That is, this is an urgent issue of reliability of gas supply "yesterday", and not for future confrontation. The process of their expansion lags far behind the growth of demand, so here China has yet to accelerate in order to reach a comfortable 20% of annual consumption. I think they take into account the possibility of interruptions in LNG supplies due to confrontation with the United States, but so far they do not consider it critical for themselves, otherwise they would be much more active in expanding pipeline gas import routes," explains Alexey Grivach.

China is unlikely to prepare for confrontation, including at the Taiwan, says Igor Yushkov, a leading analyst at the FNEB and an expert at the Financial University under the Government of Russia.

"As a rule, China acts according to commercial logic. He buys oil when it's cheaper, because it's easy enough to store it. That is, raw materials are pumped into storage facilities, and then used for domestic consumption when prices rise to obtain greater benefits. And it's not a fact that the data is correct, because Chinese statistics are often distorted, and international institutions predict incorrectly," the expert notes.

The Economist writes about high energy prices. At the same time, over the past year alone, the cost of benchmark Brent North Sea oil has ranged from $ 75 to $95 per barrel. At the same time, the main supplier of the country is Russia, whose oil, delivered by sea, Chinese companies buy at a discount.

In China, there is no need to conduct an operation in Taiwan so as not to give the Americans a reason to impose a wave of sanctions, says a leading FNEB analyst.

"Beijing believes that time is on their side: the country is developing and they will become monopolists of technology. Europe and the USA, for example, are already forced to defend themselves against Chinese electric vehicles and solar panels," adds Igor Yushkov.

Maxim Khudalov, chief strategist at Vector X investment company, believes that the purchase of oil may be related to traders who react to the reduction in the key rate in China by increasing speculative purchases.

"At the same time, demand in the country is slowing down amid a slowdown in economic growth. So far there is no reason to talk about creating excess reserves," says Maxim Khudalov.