China has thrown a lifeline to the global oil industry.
Crude oil prices surged in pre-market trading Thursday after Beijing announced plans to boost its reserves. Brent crude futures jumped 13% to $27.88 a barrel as China, the world’s largest importer, said it would take advantage of a 60% plunge in oil prices and add to its stockpiles.
Beijing has asked government agencies to quickly coordinate filling oil tanks to increase its emergency reserves. In addition to state-owned reserves, China may use commercial space for storage as well, while also encouraging companies to fill their own tanks, the government said.
The initial target is to hold government stockpiles equivalent to 90 days of net imports, which could eventually be expanded to as much as 180 days when including commercial reserves. Ninety days of net crude imports is about 900 million barrels, according to data compiled by Bloomberg. Oil traders and analysts estimate it could amount to China buying an additional 80 million to 100 million barrels of oil over the course of the year.
The positive news related to oil sent futures on all the main U.S. equity indexes higher in pre-market trading. The Stoxx Europe 600 Index fluctuated in heavy trading Thursday before turning higher, led by energy companies, after China’s announcement concerning its oil reserves.
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