Is China Looking For Protection Against Oil Price Spikes Or Something More? – CleanTechnica

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Juan Diego Celemín Mojica just wrote an excellent piece on oil production and oil demand trends. You have to read that before getting into this one. Also, as Juan said, this is an extremely complicated and opaque topic.

Reading the piece, though, I was struck by China’s stockpiling of oil reserves. It immediately got me pondering where that could lead, and what reasons China could have for doing that. Below are a few options that came to mind.

First of all, there’s the simple answer that China is stockpiling oil as much as possible in case there are global disruptions and price spikes in order to shield its own people and economy as much as possible from those challenges. This just seems like common sense if you think oil prices are lower than they are likely to be in the future. Though, even if this is a reason, or the core reason, that doesn’t mean it’s the only reason.

Secondly, similar but slightly different to the above, if the country’s leadership thinks oil prices are artificially low and will eventually increase substantially, they could be stockpiling as much oil as possible just to make a profit on it later when they can sell it again.

Thirdly, perhaps China is just trying to smooth out the oil market as demand significantly changes. If the country wasn’t stockpiling oil right now, with declining demand and increasing electrification, what would be happening to oil markets? Would the oil industry already be in a crisis? Is the stockpiling of oil just an attempt to keep the market stable for as long as possible?

Now we get into a couple more serious geopolitical possibilities.

This could be part of a strategy to protect itself from certain anti-China policies. If they are concerned about being targeted in trade wars and tariff increases, they can theoretically use these oil reserves down the line to protect themselves from policies aimed at restricting or raising the cost of trade with the country. “I imagine China will maximise its oil stock pile to limit its strategic exposure to malign actors,” one commenter noted. “It would not be surprising if China sought the ability to crash the oil markets as a retaliatory lever should people try to prevent them increasing the living standards of their population (with sanctions, embargoes, etc.). This would only really hurt high cost producers, at least initially. I don’t think they will do this is the short term they will likely wait until it can be orchestrated with SE Asian economies and they are at present at least a couple of years behind China in EV adoption (though Vietnam, Indonesia, Thailand, Malaysia are all ramping up production quite quickly now). These countries are all quite patient and have long memories.”

Perhaps in the same boat as that one, but with more suspicion of China starting the trouble, yet another commenter proposed that “Chinese stockpiling is likely preparation for their stated goal of invading Taiwan and suffering sanctions. Hopefully Russia will crash in Ukraine before that and provide a cautionary tail.” In other words, rather than being protection against anti-China policies that came with little to no instigation, the idea here is that China is planning to engage in activities that it knows will lead to pushback from the West and sanctions.

Similarly, China could just be fed up with the oil industry’s global political and economic control. It could be working toward energy independence and waiting for an opportunity to actually disrupt the oil market. This seems unlikely, but it’s one more possibility, especially if China somehow saw it as a way to gain more power globally and take greater control of policies around the world.

Anyway, at the end of the day, the most influential or second most influential market in the world is weaning itself off of oil, building up a backup supply of it, and will be less and less tethered to the oil-dominated politics and economies of the rest of the world as those trends continue. If it is expecting global disruption from increasing electrification (it must be expecting that, right?), it is also building up a cushion for its declining but remaining oil needs. This may seem like a minor matter today, but what about 3 years, 5 years, or 10 years down the road? How much will China, which is now buying more plugin vehicles than non-plugin vehicles, crash the oil economy naturally in the next several years, and what will the results be?

There are a lot of interesting factors to consider on this, and many of these seem only destined to grow. Stay tuned for more.