Managing Strategic Petroleum Reserves

The Wall Street Journal suggests today that part of the latest surge in China’s oil imports is attributable to a desire to boost the country’s oil stockpiles.

The Wall Street Journal reports that for 2012:Q1,

China’s crude imports rose 11% from the year-ago quarter, a much stronger pace than full-year 2011’s increase of 6%, the China’s General Administration of Customs said…. The wave of imports, added to domestic production, has exceeded the amount of crude the country’s refineries can process, analysts said….

China has brought new storage facilities online in recent months, said market observers and the International Energy Agency, another sign of a potential strategic reserve buildup. Also, China’s desire for energy security is becoming stronger amid turmoil in the Middle East, they said.

The added demand could amount to 50 million barrels this year, said Kang Wu, a senior fellow who follows China’s energy policies at East-West Center, a Honolulu think tank.

It’s interesting that this move by China is coming at the same time as the U.S. and its allies are moving in the direction of selling more oil out of their strategic stockpiles. Indeed, the 50 million barrel increase by China anticipated by Mr. Wu is about the size of the 60 million barrels sold from the strategic reserves of the U.S. and other countries last year.

The proposed release of oil by western nations and the current accumulation of oil by China may have a common cause– an effort to deal with the consequences of efforts to sanction Iran. While western sanctions are curtailing Iranian oil exports to many countries, China imported 30% more oil from Iran in 2011 than it had in 2010, a year when their overall crude imports were up only 6%.

The U.S. sanctions and sells, while China ignores and buys. I think it’s called arbitrage.

This post originally appeared at Econbrowser and is posted with permission.