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China imported almost one-tenth more crude year-on-year in the first
five months of 2007, on higher demand for refined oil, customs said.

“The growth in crude imports is a result of soaring demand for refined
oil - and reserves enlargement as well,” Gong Jinshuang, a senior
analyst at the economic and technology research institute under China
National Petroleum Corp (CNPC), said on Friday.

China refined 6.5 percent more crude from January to May year-on-year
using both imported and locally produced crude oil as the raw material,
he said. And as the refining business expands, refiners will inevitably
enlarge oil reserves and storage, Gong said.

Crude imports for January to May rose 9.6 percent on 2006 to 67.43
million tons, according to customs. But exports fell 37 percent to 1.6
million tons in the period.

“Also, the operation of national strategic oil reserves may, to some
extent, facilitate oil imports,” Gong said.

Gong said the first three reserves are operated by either Sinopec or
Sinochem, and most of the oil is imported.

The national reserve operated by CNPC is still under construction, he
said. CNPC is the country’s top oil and gas producer, and is likely to
use more locally produced crude for the strategic reserves.

Asia’s top refiner Sinopec processed around 4 percent more crude in the
first quarter this year, compared with the same period last year. The
firm’s second-quarter refining business may suffer slightly because of
a higher global oil price, said Liu Gu, a veteran analyst with Guotai
Jun’an Securities.

Sinopec imported 70 percent of the crude needed for its oil refining
business last year. To fend off extra risk brought by the oil price
increase, Sinopec has also set up China’s first commercial oil reserve
company.

The countryis targeting corporate reserves to leverage demand and
supply, in addition to the national strategic reserves. China’s first energy
law will stipulate commercial oil reserves be set at corporate level,
according to key drafters.

Four national strategic oil reserve sites were approved in 2004 -
Ningbo and Daishan of Zhejiang Province, Huangdao of Shandong Province and
Dalian in Liaoning Province.

The National Development and Reform Commission said the country’s first
strategic oil reserve in Ningbo is in operation, while insiders said
the Daishan site is also on-stream

By Wang Yu