China SPR Near Capacity, Oil Demand Set to Drop

ZH: Oil Bulls Beware: Crude Demand Is About To Slide As China's SPR Is "Close To Capacity"
As Bloomberg says, citing a JPM report, "one of the pillars of oil’s recovery from the lowest price in 12 years may be on the verge of crumbling."

The reason: as many speculated, a big source of China's demand in the past 5 months was Beijing's decision to stockpile oil for its SPR. However, that is now over as China is likely close to filling its strategic petroleum reserves after doubling purchases for it this year as prices plunged. JPM estimates that China's SPR demand was equivalent to approximately 1mm bpd. More importantly, stopping shipments for the reserve would wipe out about 15 percent of the country’s imports, according to the bank.
At current import rates, China's SPR would be filled by September.
Based on our base case of assuming another high SPR builds through August and the following three assumptions listed below, our model suggests a 15% mom decline in China’s crude oil net imports in September, or a loss of 1.2mmbbl versus August and 0.8mmbbl less from the 12-month average. Although it’s difficult to have an accurate forecast of the specific timing of the drop, we think it’s worth noting this risk and previous accumulation looks high based on our assessment. We do not believe the 16% growth in oil imports ytd is sustainable despite a domestic oil production decline, as demand is weak (2% expansion in oil processing with gasoline an increased risk), if inventory capacity reaches the limit.
Barring some change in the Chinese or global economy, that is more supply for the market. A further drop in oil might also cause countries such as Venezuela to send more oil to China, since they'll be out of dollars.

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