China Boosting Oil Reserve

China is boosting their oil reserve, which should continue to spike demand.

China's plans to build its strategic petroleum reserves to at least 100 million barrels by 2010 could add more pressure to crude prices which have already been at record highs.

The world's second-largest oil consumer already has built two underground storage reserves in east China and will put into use two more storage bases soon, a senior Chinese official said over the weekend, according to China's official Xinhua news agency.

"Although China is not the only source of rising oil prices, it has consumed the largest share of the global increase in oil demand in the last seven years," said Donald Straszheim, chairman of Straszheim Global Advisors and an expert on Asian economies. "Building reserves will of course add more pressure on global oil prices."

This increase is slated to take place over ten years, but I would look for crude oil prices to stay high for the foreseeable future. It is also a good way for China to dispose of dollars in the world market (oil is priced in dollars).

So how big of an impact are we talking about?

It's unclear how much oil China has stocked in its existing bases. But since the country is just in the first steps of building reserves, China will likely need to buy 100 million barrels in two years to reach the 120 million barrels level in 2010, Williams said. That's about 140,000 barrels a day, or 2% of China's current consumption. The percentage isn't small compared to some estimates that put China's growth in total oil demand at around 6%.

I would not expect a significant drop in oil prices any time real soon.