* Imports likely to surge past May record in June or July
* More storage capacity to prompt China to boost stockpile
* China likely added 40 mln bbls to its SPR in Jan-May
* Weak demand, however, could erode stockpiling benefits
BEIJING, June 12 China's oil imports will likely
surge past last month's record in either June or July as falling
prices and expanding storage capacity encourage the world's
second-largest buyer to boost its emergency stockpiles.
Higher overseas purchases by China would be a bright spot in
an otherwise grim outlook for oil demand amid uncertainty about
the strength of the Chinese economy and the euro zone debt
crisis, which pushed oil prices down in May by the most in more
than three years.
"I think oil companies may buy more these days as prices are
falling, and it's a good chance to buy especially as some
strategic petroleum reserve tanks will finish construction in
the second half of this year," said an oil analyst with a
Beijing-based investment bank, who declined to be identified due
to company policy.
Spot shipments that arrive in May typically need to be
booked by March, so China bought the record volume of imports
even thought Brent was averaging around $120 a barrel
then. Prices fell about 3 percent in April and another 15
percent in May - raising the appeal of buying for stockpiles for
the government and refiners.
China could have diverted around 40 million barrels to its
strategic petroleum reserve (SPR) in the first five months of
the year, the analyst said, and could maintain its oil buying
spree in the coming months with some 85 to 110 million barrels
of additional SPR storage capacity likely to become available in
the second half of 2012.
China originally planned to complete the 170-million barrel
second phase of its strategic oil reserve this year, and at
least some of its new tanks in northwestern China have already
In May, China defied expectations by hauling in a record 6
million barrels per day of crude, 18.2 percent more than a year
earlier and up 11 percent from April, data from the General
Administration of Customs showed.
Total crude supplied to the world's second largest oil
consuming market - net imports plus domestic production -
exceeded the amount processed by refineries by 1.04 million bpd
in May, the highest gap this year, suggesting more oil has been
put in commercial or strategic storage.
The surplus averaged at 588,400 bpd in the first five
months, Reuters calculations based on government data showed.
China does not publish either commercial or SPR levels on a
EYE ON DEMAND
Still, some cautioned that slow domestic demand, if
sustained, could start to erode the impact of stockpiling on
"Since oil demand is sluggish, some oil product inventory
tanks are almost full. Refineries are not willing to process
more crude," said a crude trader with a state-owned oil firm,
adding that refineries and traders were also reluctant to make
large purchases given the recent volatility in oil prices.
China's implied oil demand inched up 0.4 percent
year-on-year in May after posting its first decline in more than
three years in April when refineries pared crude processing for
the second month in a row due to mounting fuel inventories and
Consultancy JBC Energy predicted Chinese diesel demand will
increase by only 2.9 percent this year, a significant drop
compared with a growth of 6.9 percent in 2011, while gasoline
should grow by 3 percent compared to 5.6 percent last year.
"The recent price cuts are unlikely to give demand a
significant boost given that pump prices are still at
comparatively high levels, while recently weakening economic
activity should also play a role in dampening requirements," JBC
Energy said in a research note.
China cut fuel prices by nearly 6 percent on Saturday in the
second reduction this year and the largest since late 2008,
after crude pries fell further since the last fuel cut in May.
(Reporting by Judy Hua, Jim Bai and David Stanway; Editing by