- The Washington Times - Wednesday, September 15, 2004

BURGENSTOCK, Switzerland — China, spurred by the increasing importance of oil in its rapidly expanding economy, plans to establish a strategic petroleum reserve equivalent to about 30 days of consumption, according to a senior Chinese executive.

Wu Xiaoqiang, vice president of the Shanghai Futures Exchange, which trades energy contracts, disclosed the plans on the sidelines of the annual Burgenstock International Futures Industry Conference.

“Actually, the current realistic target is to establish oil reserves of 30 days. If the oil reserve was higher, we would need a lot of money, and prices [could] go up,” Mr. Wu said in an interview.

The level envisaged is less than the minimum 90-day reserve that the Paris-based International Energy Agency — a club of net-energy-importing industrialized countries set up after the first oil shock in 1973 — recommends for its members.

Oil-industry analysts and traders do not expect the Chinese plan to have a major impact on world oil prices, which are currently hovering above $40 per barrel.

“I’m not sure of the impact on oil prices on a short-term basis” that the Chinese move might have, said Anthony George Nero, senior vice president at Legg Mason Inc. in New York.

“Anyone who puts oil away for a rainy day does it slowly, carefully and not at once,” said Mr. Nero, who is also a board member of the New York Mercantile Exchange (NYSE) — the world’s biggest energy-commodities exchange.

A senior IEA official said that when the Chinese facilities to store oil come on line it would have a one-time effect.

The official, who asked not to be named, also said India is talking of establishing a strategic oil reserve.

“China is using up more oil reserves than it is finding. It’s the single-biggest drain on their balance of payments and that’s one of the reasons fueling these high spot prices,” said Roy Leighton, chairman of the European advisory board of Calyon SA.

The Asian demand is driving up the world price for commodities such as oil, copper and aluminum, said Mr. Leighton, who is also chairman of the World Bank’s international task force for commodities.

According to the latest IEA oil monthly report, China’s net imports of crude oil in July averaged 2.18 million barrels per day.

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