Beijing intensifies oil stockpiling amid global supply and sanctions

China, the world's largest crude oil buyer, is dramatically expanding its strategic petroleum reserves, with 11 new sites slated for construction this year and next, signaling an intensified effort by Beijing to secure its energy supply.

Of the 11 sites, three are located inland in northern Shaanxi province and southwest Yunnan, with the remaining sites situated along the east and south coasts, according to a Reuters report.

The storage facilities have a total capacity of 26.8 million cubic meters (approximately 169 million barrels), which could cover two weeks of China's crude oil imports. 

Sinopec, CNOOC, and other state oil companies are slated to collectively increase their oil storage capacity by a minimum of 169 million barrels. 

This is in contrast to the 180-190 million barrels of storage capacity that China is estimated to have added between 2020 and 2024, according to data analytics firms Vortexa and Kpler.

Drivers and impact of reserve accumulation

Government and corporate entities have designated most new storage facilities as "commercial reserves," as reported by local state media and company websites.

However, industry experts stated that the tanks, built by national oil companies to procure oil for reserves, function as government emergency stockpiles.

In late 2021, China's Fujian province put forth a proposal to construct 31 million cubic meters (equivalent to 195 million barrels) of underground oil storage. This development, as reported on local government websites, is slated to occur between 2022 and 2026.

China's reserve accumulation, estimated by S&P Global Commodity Insight at an average of 530,000 barrels per day in 2025, is absorbing excess global supply. 

This activity is bolstering prices that have been under pressure due to OPEC+ production cuts. 

Traders and consultancies anticipate this stockpiling, spurred by recent prices below $70 per barrel, will persist until at least the end of the first quarter of 2026.

Addressing strategic weakness and outlook

China's significant reliance on foreign oil, primarily transported by tankers, represents a strategic weakness. 

To address this, Beijing is focusing on increasing storage capacity, diversifying its oil import sources, and sustaining domestic production. 

Concurrently, China is aggressively advancing renewable energy development and the electrification of its vehicle fleet. 

These efforts are expected to lead to a decline in demand for both gasoline and diesel, with overall oil consumption projected to reach its highest point in 2027.

China's first strategic reserve site was established in 2006. However, Beijing's recent focus on building reserves intensified after Russia's 2022 invasion of Ukraine. 

This event led to extensive sanctions against Moscow, revealing the susceptibility of Beijing's oil imports, according to traders and analysts. 

Due to China's lack of transparency regarding its reserves, the information available might be incomplete, and project statuses could be subject to change.

Since late 2023, Beijing has been quietly directing state-owned companies to build up oil stockpiles. 

According to traders and analysts, these mandates include a July directive, reported by London-based Energy Aspects, to purchase 140 million barrels for strategic reserves, with deliveries scheduled until March 2026.