China’s swelling storage tanks is finding its way back into the international market as traders jump at the opportunity to source cheap crude for resale to regional refiners. China will never compete with the likes of Saudi Arabia as a supplier; the trickle of crude out of the world’s No. 1 importer underscores how fragile oil’s recovery remains. China went on a record buying spree to fill its reserves with low-cost supplies, helping prices double from April lows. Now the purchases are slowing and some of those stockpiles are hitting the market just as OPEC and its partners prepare to raise output.
Rising inventories are weighing on the price of the oil futures, making it attractive for traders to buy them, accept physical delivery upon expiration, and then ship the crude to refineries nearby, according to traders.
As oil demand and prices sunk amid the pandemic this year, traders looked for anywhere they could park unwanted barrels. Physical players had delivered 27 million barrels of oil into INE’s depots in the first six months of the year, the exchange said in a statement on its official Wechat account. That volume accounted for 57% of all deliveries since the debut in 2018. About 40% of the new volumes were for hedging.
BP Plc became the first western major to deliver oil into INE’s Weifang depot owned by Sinochem Hongrun. Days later, Mercuria also sold cargo into the same depot for August contracts. Since the start of the year, overseas investors contributed to 16% of daily trading volume for the yuan contracts while making up for 28% of open interest,