With the energy security aspirations of Asia’s biggest four oil importers—China, India, Japan and South Korea—perpetually vulnerable to global price gyrations, they have increasingly expanded their SPR capacity over the past decades—an effort to ensure they have an emergency oil storage facility that can be used to mitigate oil supply disruptions, reports Platts.
Fragile economic recovery
When crude oil prices crossed $85 a barrel earlier this year, Asian oil importers worried this would derail a fragile economic recovery. As a result, for the first time countries like India and China turned to strategic oil reserves to cushion the impact of rising prices.
Market sources are unanimous in their view that Asian importers will be reluctant to release huge volumes from SPRs and make it an ongoing trend—just as a cushion for high prices
The market also witnessed coordinated SPR releases by Asian consumers, along with the United States. While market reaction to the development has been muted so far, largely because actual releases have come in below expectations, traders have one key question in mind: Will this be an ongoing trend?
“Adding a layer of uncertainty is the fact that China and India are large net oil importers. So they will likely seek to restock their strategic buffers at some point. This will add a degree of market support down the road, potentially at even higher crude price points,” said Paul Sheldon, Chief Geopolitical Advisor at Platts Analytics.
Immediately after the White House announced Nov. 23 that the US will release 50 million barrels from its SPR early next year, India, China, South Korea and Japan followed suit and announced their plans to release SPRs.
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Source: Platts
