China plans to build state fuel reserves

China plans to build state reserves of oil products to help ease the pressure of rising stock levels on domestic refiners as slowing economic growth hits demand, an industry source and a media report said on Thursday.

China's commercial oil product stocks hit record highs at the end of last year as apparent oil demand fell for a second month in December. The size of the current state reserves is not publicly available information.

"We should learn a lesson from last year's experience that a certain amount of state fuel reserves are needed to stabilise market supply and demand," an industry source said. He declined to be named as he is not autorised to speak to the media.

"It can also help lower oil firms' high stocks now," he added. China's fuel sector is dominated by state-owned oil giants Sinopec Group and CNPC, the parent companies of Sinopec Corp and PetroChina.

"A proposal has been submitted to the authorities."

The government had yet to decide how much to buy, he said.

A report in a Shanghai-based newspaper, the China Business News, had similar information on Thursday but also quoted an expert involved in the proposal as saying the state reserves could be expanded to 10 million tonnes by 2011.

The industry source did not confirm that information.

Last year, China imported 38.83 million tonnes of oil products, including 21.6 million tonnes of fuel oil and more than 6 million tonnes of kerosene and diesel.

The source said the stockpiling of reserves was part of a draft package to stimulate the country's petrochemicals sector.

State media have said the stimulus plan likely includes 100 billion yuan ($14.6 billion) in investment to upgrade the quality of oil products and 400 billion yuan ($58.4 billion) for the construction of dozens of new petrochemical projects, and to support overseas acquisitions of oil resources.