China Crude Tanks Operational from End-August

Vopak storage site in Hainan due for start-up next month.

State-owned and private companies will start up about 26 million barrels of new oil tanks in southern China in coming months, amid strong demand for storage from traders who expect prices to recover enough to pay for the cost of holding crude.

Benchmark crudes recovered from recent losses on Thursday following a large U.S. stock draw, but concerns over a global glut still weigh on prices as OPEC pumped some 3 million barrels a day (bpd) more than demand in the second quarter, a Reuters survey found.

"The most recent oil price decline is starting to create again the right conditions for inventory accumulation," Marex Spectron analysts said in a note.

"Return on storage is positive again after more than a month of negative readings," they said.

Vopak - the world's largest independent tank terminal operator - is set to start up an 8.2-million-barrel crude storage facility in the southern island province of Hainan by end-August, said one source with knowledge of the facility.

That is about three months behind schedule, according to industry sources. Vopak declined to comment on potential customers, but confirmed that operations at the tanks would start in the third quarter.

Vopak and its Chinese partner State Development & Investment Corp are in advanced discussions with potential clients, including commodity trader Noble Group (NOBGF) and the National Iranian Oil Company, said senior trade sources.

Private company CEFC Energy is slated to bring online in early October a 17.6-million-barrel facility, including just over 15.1 million barrels for crude and the remainder for light transportation fuels, traders said.

The CEFC tanks, also located at Yangpu near the Vopak site, are about a month behind schedule. A company source said "a number of clients are in discussions" to lease the space.

Traders said the two new storage facilities are not well-sited as there is only one big Sinopec-owned 160,000 barrels-per-day refinery nearby as a potential end-consumer, but the tanks could be a springboard for shipments further north.

Some of the tanks will be bonded, and oil could be transferred to other markets such as Taiwan and South Korea.

China, the world's No.2 oil consumer, has been taking advantage of oil prices that are less than half of last year's peak to fill its strategic reserves, analysts say.

Customs data showed China's crude imports in the first half of the year up 7.5 percent on year at 6.6 million bpd, and possibly surpassing the United States as the world's top crude oil buyer in April and June.

The new facilities are part of the 42 million barrels of commercial storage expected to start this year in China.

By Chen Aizhu and Florence Tan