China's stockpile of refined oil products is expected to touch 10 million tons by the end of 2011, industry insiders have said. The country will shore up the inventory of oil products between this year and the next, they said. The move is widely expected to stabilize the domestic petrochemical market that has been hit by the economic downturn.

"Under the upcoming stimulus plan for the petrochemical industry, China will establish 3 million tons of oil product reserves this year. That will increase to 6 million tons next year," an official familiar with the plan said, refusing to be named.

The fresh reserves plan is still awaiting government approval, he said. China's leading oil companies, PetroChina and Sinopec, would take the charge of the reserves build-up.

Spokesmen for the two oil firms declined to comment. But an official with Sinopec who asked not to be named, said the two oil companies may be given responsibility for construction work, while the government will manage the reserves.

Analysts said the timing for such a move was just right as the market demand is declining and stockpiles of domestic refiners are relatively high.

"This can help ease the pressure on domestic oil firms' high stocks now," said Han Xiaoping, a veteran energy analyst. The oil products stock of domestic refiners were at 12.64 million tons at the end of December 2008, a jump of 47 percent year-on-year, the China Petroleum and Chemical Industry Association (CPCIA) said.

The global financial crisis has delivered a sharp blow to China's petrochemical industry. In December, the sector actually saw negative growth. "This is the first drop in 10 years," said Feng Shiliang, a CPCIA analyst.

"Oil product reserves can also help in stabilizing domestic oil prices," said Han. "When there is a big gap between domestic and global oil prices, the government can use some of the reserves to ease the difficulties of refiners."

Last year China imported 38.85 million tons of refined oil products, including 21.6 million tons of fuel oil and more than 6 million tons of kerosene and diesel. The total value of these imports was US$30 billion.

(China Daily February 18, 2009)