SPR buying 101: buy low

China started filling its third strategic crude reserve last month, also saying then that it had completed plans for the second phase of the nation's SPR program, with aims for an additional storage capacity of 26.8 million cubic meters. The first phase consists of a storage capacity of 16.2 million cu m and four crude oil terminals.

According to a story in the December 15, 2009 issue of Platts Oilgram News, a senior port official said it was the "right time" for China to fill its SPR given that prices were down by over $100/b from its July peak and prices appeared to have bottomed out. The third reserve is in the port of Qingdao in Shandog province. China first started building an SPR program in 2004.

No doubt luck plays a part in China's timing. And if oil tumbles to $15-$20/b, China may not be looking so smart. But hats off for saving Chinese taxpayers money and at least getting the price direction right--from up to down, versus down to up, unlike Bodman, who despite months-long political pressure continued an aggressive build-up of its SPR program until May 22.

The Bush administration's insistence at beefing up its SPR as crude oil prices marched apace from 2007-mid-2008 was criticized for contributing to the crude oil price pressure--not to mention buying at top dollar. DOE's belated move to stop filling its SPR just 24 million barrels shy of topping out the program's maximum existing capacity of 727 million barrels, and two months shy of oil's peak rally at $147/b.