Source: The post China is stockpiling oil for strategic reasons has been created, based on the article “Crude conspiracy: China’s oil spree might have hidden aims” published in “ Live Mint” on 22 September 2025. China is stockpiling oil for strategic reasons.
UPSC Syllabus Topic: GS Paper 2 –Effect of policies and politics of developed and developing countries on India’s interests. And GS Paper 3– Infrastructure (energy)
Context: China has accumulated over 150 million barrels of crude—about $10 billion at current prices—well above use this year. In the 2nd quarter of 2025, the International Energy Agency estimated that China accounted for more than 90% of the measurable worldwide stock build. With a large surplus expected in 2026, China’s choices could shape prices and balances.
Why is China stockpiling oil?
- Opportunistic buying: Planners think long-term and purchase when oil is cheap after inflation adjustment. On that basis, West Texas Intermediate (WTI) is near its 20-year real price level, making large purchases sensible despite rising EV use. Locking in low real costs now helps secure supply and improves future bargaining power.
- Storage capacity is ready: China has built a large amount of new oil storage, including tanks and underground caverns, and more facilities are expected to be ready by 2026. Current estimates suggest that about half of the existing storage space is still unused. This means China can continue adding oil quickly and in large volumes without facing storage limitations.
- A new legal mandate: Since 1 January, a new energy law requires both state-owned and private companies to maintain strategic oil reserves. This shifts stockpiling from only the state to a shared responsibility with the commercial sector, creating a firm legal basis for a sustained rise in national inventories..
What strategic calculations are shaping the buildup?
- Insurance against sanctions exposure: About 20% of crude imports come from sanctioned suppliers—Iran, Russia, Venezuela. Extra stocks hedge against possible US-led disruptions. Inventories cover about 110 days of consumption, with informal talk of 140–180 days by 2026.
- Contingency for conflict: Some traders link supplemental buying to Taiwan-related tensions. Additional barrels would cushion a sudden geopolitical or military shock.
- Diversifying reserves: China is using crude oil as part of its financial reserve strategy, just like it already does with gold and other non-dollar assets. By buying oil worth about $10 billion in 2025—and possibly the same in 2026—China is reducing its dependence on US government bonds (Treasuries). This shift spreads its reserves across more assets, lowering the risk of being too reliant on the US financial system..
How does this affect the market outlook?
- Price support: In Q2, China drove over 90% of the global increase in tracked inventories, per IEA estimates. That concentration of stock build supported prices in 2025 and highlights China’s outsized role in absorbing surplus supply.
- Capacity, opacity, and likely path: At the Asia-Pacific Petroleum Conference in Singapore, traders agreed China can store more, but timing is uncertain. As Ilia Bouchouev put it, “nobody has a crystal ball” on the duration of strategic buying. Commercial logic and strategic aims align, so continued stockpiling into 2026 appears likely, though the pace may vary.
Question for practice:
Examine the main reasons behind China’s recent oil stockpiling and its likely impact on the 2026 oil market.
