China withdraws record quantities of accumulated oil inventory

China, the world’s largest crude oil importer, is drawing record amounts of inventory that accumulated earlier this year as refineries downsize after rising prices, traders and analysts said.

Chinese refineries have built up a surplus of inventory with huge storage capacity built over the past decade, giving buyers flexibility to increase purchases when prices are low and reduce them when the price of oil rises.

Analysts said that its ability to take advantage of huge stocks could weaken Chinese demand as fears of a weaker economy grow, according to Reuters.

Data collected by Kepler and Fortxa Data Analysis showed that China’s crude oil inventory has been rising since March, touching a historic level of nearly 1 billion barrels in late July. Traders said this was caused by lower prices and optimism about a recovery in fuel demand after COVID-19 restrictions were lifted late last year.

Kepler and Fortxa data showed some withdrawals in the first quarter of the year.

However, demand was disappointing, prompting refineries to increase ore stocks and fuel exports. “China has built up inventory to withdraw it whenever it wants to avoid increasing prices in the market during July and August,” said Kepler analyst Victor Katona.

“This worked well as a tactical step, because they avoided a situation where the price reaches $85 a barrel and more when buying in bulk.”