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Resources surge on China demand


One reason behind the rebound in world oil prices lies here on China’s eastern seaboard, where tidy rows of immense, squat oil tanks tucked away on an island south of Shanghai, have been filled to guard China’s energy security.

Patrolled by military personnel, these tanks in Zhoushan are one of four locations where China keeps its national strategic reserves.

Since crude oil and other commodity prices plunged last year — oil tumbled from $147 last July to nearly $33 in December — China has been rushing to build up stockpiles at bargain prices, economists say. That motive, more than a revival in actual industrial demand, has driven its recent import boom of oil, copper and other metals.

The surge in Chinese demand, along with rising hopes for a global economic recovery, has helped lift the price of oil, which is now trading at around $70 a barrel, and other commodities.

The question is how high prices will go before Chinese buyers — and other investors that have flooded into commodities from other markets — decide to cut back, says Simon Wardell, an oil analyst at IHS Global Insight based in London.

“This market is persisting and it may well persist for a few more months yet, simply on the basis of increased optimism,” he said.

China is obsessed with making sure it has enough energy and materials to feed its economy. Authorities plan to build more oil reserve tanks while lining up diverse supply sources, from Brazil to Nigeria and Siberia.

Earlier this month, energy chief Zhang Guobao announced government approval of a second phase of strategic oil reserves that will hold 26.8 million cubic meters of crude oil — bigger than the current reserves of 16.4 million cubic meters.

Ultimately, China aims to have about three months of supply in national reserves. It now has about a month’s worth, or about 38.6 million tons of crude oil in both commercial and state reserves, according to state media reports.

The United States also has taken advantage of the drop in oil prices to buy crude for its Strategic Petroleum Reserve, which is far bigger than China’s.

In January, the U.S. Energy Department said it would seek contracts and other arrangements for the delivery of nearly 20 million barrels of oil for the reserve to raise its total to 727 million barrels by the end of the 2009 — equal to about 70 days of oil imports.

The world’s second-largest oil consumer after the United States, China imported 178.9 million tons of crude oil last year, up nearly 10 percent from 2007, to meet about half of its total demand. In May, imports surged to 17.09 million tons, nearly matching the monthly peak hit in March 2008, when the economy was still booming.

China also is the world’s biggest consumer of many other commodities, from iron ore and coal to soybeans and cotton.

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