LONDON: A dramatic build-up in China's strategic petroleum reserve and surging demand for imported crude oil are likely to transform the global energy markets this year, regardless of any production freeze agreed by Opec and Russia this weekend.
Chinese credit stimulus and a 20pc rise in public spending have set off a fresh mini-cycle of growth that is already sucking in oil imports at a much faster pace than expected.
Barclays estimates that the country will import an average of 8m barrels per day (b/d) this year, a huge jump from 6.7m b/d last year. It is arguably enough to soak up a big chunk of the excess supply currently flooding global markets. Standard Chartered said Chinese imports could reach 10m b/d by the end of 2018, implying a supply crunch and a fresh spike in oil prices as the market is turned on its head.
Energy consultancy Wood Mackenzie says $400bn (pounds 282bn) in oil and gas projects have been shelved since the onset of the commodity slump.
Feifei Li, Barclays' oil analyst, said China is in a rush to fill four new storage sites of its petroleum reserve. "It is an urgent priority of the government to fill up the tanks while the price of oil is cheap," he said.
Fresh storage is likely to average 250,000 b/d, five times the level last year. China is building vast underground rock caverns in the interior of the country as a top national security priority. It aims to boost reserves to 550m barrels and ensure a 90-day buffer to resist an external supply shock.
China's own output of oil has fallen by 200,000 b/d over the last year as PetroChina and Sinopec slash investment, while demand has continued to grow.
Car sales are expected to rise by 6pc this year and Chinese customers are switching to bigger models. The International Energy Agency forecasts that Chinese petrol demand will jump by 8.8pc this year, and jet fuel by 7.5pc.
Set against the China effect - and fast rising demand in India - the Opec meeting in Doha is almost irrelevant, though it could lead to wild moves in the short run. Traders are waiting nervously to learn whether the loose accord reached by Saudi Arabia and Russia in February can be broadened to other countries, or even whether the freeze can survive at all as Iran demands its pre-sanctions share of the market.
Russia's oil minister Alexander Novak has played down expectations, talking only of a "gentlemen's agreement" to restrain excess supply.
Prince Mohammad bin Salman, Saudi Arabia's deputy crown prince and de facto ruler, was even blunter, giving a strong hint last week that his country would not let arch-rival Iran eat into its market share. "If all countries agree to freeze production, we're ready. If there is anyone that decides to raise their production, then we will not reject any opportunity that knocks on our door," he told Bloomberg.
Tanker surveys indicate Iran's exports have jumped 600,000 b/d this month, a huge rise that offsets the entire cut in daily US shale output since last July.