Sinopec, Asia's biggest refiner and China's primary crude oil importer, has secured a deal to use 10 million barrels of storage at the new tanks in eastern China, and is in talks to double that, industry sources said Wednesday.

Shifting some management responsibilities to Sinopec could make it easier for Beijing and its state firms to draw or build supplies as prices rise and fall, heightening uncertainty over the buying habits of the world's second-largest consumer, which caused prices to soar in 2004 when imports surged by a third.

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"Sinopec has rented 16 tanks totaling 1.6 million cubic meters. They are eyeing a total of 32 tanks," said an industry official.

The terms of the lease, including duration and cost, have yet to be decided, the sources said. The 1.6 million cubic meters (about 10 million barrels) agreed so far is about a third of Zhenhai's storage space of 33 million barrels.

China, which now imports nearly half its crude, pumped the first drops into the storage tanks at Zhenhai in August as part of its drive to insulate itself from supply disruptions. About three million barrels of Russian crude have been placed there.

Having secured the first lease, Sinopec booked another nearly four million barrels of crude from unknown countries to be poured into the tanks by mid-December, filling them to about one-fifth of their capacity, sources said last week.

Analysts say China's stockpiling is helping provide a floor to oil prices, which have traded in a monthlong range of US$57-US$62 (HK$444.60- HK$483.60) a barrel after a 24 percent fall from a record of above US$78 in July.

Officials at the National Development and Reform Commission, China's top energy policy body, were not immediately available for comment.

With the stockbuild underway, traders are increasingly anxious for word on how Beijing will operate the reserves, which are enough to meet about 11 days of its imports.

Another two facilities are planned to be completed before mid-2007 as Beijing aims for more than 100 million barrels in tank by 2008.

A US official said last week Washington was worried that China might be tempted to tap into strategic stockpiles if it sees high oil prices are impeding its economic growth.

Niu Li, economist at the State Information Center, a unit of the NDRC, said Beijing's build-up of reserves was too small to affect prices on the 85 million barrels per day market and that it could use the supplies as a way to help soothe jittery markets. "China would want to be a stabilizing factor, not a disruptive one, because volatile oil prices will not benefit China," he said.

Analysts said China was likely to take a different approach than the industrialized members of the International Energy Agency, gatekeeper of 1.5 billion barrels of government stocks in Europe, Japan and the Americas. It has only authorized a coordinated global release twice in its 32-year history.

But it also may not give Sinopec and state firms free use of the reserves, and has been looking to other models that would help defray the cost of reserves without ceding control.

"The official line at the very top is clear - the stockpile has to stay clear of any commercial operation. It has to be strategic, pertaining to the nation's fundamental interest," said Yang Fuqiang, chief China representative at the Energy Foundation, a key adviser on energy efficiency.

For the moment, China is still drawing up the energy law that would include rules on the reserves, similar to those build up in the West after the Arab oil embargo of 1973-1974.

Leasing out government-owned tanks is not without precedent - South Korea rents out storage to foreign companies and countries such as Norway's Statoil, Algeria and Kuwait, but retains the right to use the stocks in case of emergency.

But by spreading the use among many different firms, Seoul sidesteps any accusations it is trying to manipulate prices.

The IEA, which last released stocks after hurricanes battered the US oil industry in 2005, met with NDRC policy- makers last month, calling for sharing oil market data and transparency.

Beyond the strategic implications, oil traders wonder if the Sinopec lease will give the company's increasingly aggressive trading arm Unipec more leverage on the global market.

The storage will give sales flexibility and may allow it to profit from the current contango market, as forward prices are higher than prompt.

The Zhenhai government tanks are next to Zhenhai Refining and Chemical, a unit of Sinopec and China's largest refinery with 400,000 bpd output.

REUTERS