RIYADH, Feb 14: When Chinese President Hu Jintao landed in Riyadh earlier this week, he carried a special brief - China wanted more Saudi oil. And agreements signed during the visit included enhancing cooperation in oil, gas and mining.

The energy aspect of the visit was interesting in more than one ways. It occurred at a time while the world is literally brimming with crude. When former US president Bush visited Riyadh twice with the same request, the environment was completely different. Prices then were going up and up and the US felt like doing something to rectify the scenario somehow. Bush thought of influencing the supply side of the balance, as the easiest way out of the imbroglio.

Now it’s a different world. Despite the recent tightening of taps by the Opec, the world continues floating in crude. Inventories in the US, the world’s largest consumer, were seen growing by 700,000 to 900,000 barrels a day in January - the most recorded in January in 85 years. At 346 million barrels, crude stocks are also at the highest levels since the record 351 million barrels registered in July 2007. Amid low prices, the US continues to fill its Strategic petroleum Reserves to capacity.

And this took place despite the demand falling in January by 2.8 per cent to 19.549 million barrels - the lowest for the month since 2002, marking the 18th straight month of year-on-year declines. Indeed this has helped the U.S. crude inventories to balloon to the highest level in years. Demand destruction today seems more than offsetting the output cuts of Opec.

And now with crude prices at real low levels, China also seems to be embarking on the same path. Top energy official, Zhang Guobao, head of the National Energy Administration, in a rare recent piece in the People’s Daily newspaper argued that China too, like the US, should take advantage of the falling global energy demand (and prices) to increase its oil reserves.

It has been reported that China recently completed construction of four oil reserve bases, together representing the first phase of its strategic oil-reserve plan, with a capacity to hold 102 million barrels of crude oil.

China is now reportedly pushing ahead with the construction of the second phase, which could store an additional 170 million barrels. China’s inventory policy is a critically important factor in determining global oil price, says Ting. The U.S. suspended adding oil to the emergency reserve in May 2008 after oil prices soared to over $100 a barrel. It is widely believed that China stopped its filling efforts after oil prices reached $70 a barrel around August 2007, before resuming it later.

Initiative thus seems to have slipped out of the Opec’s hands - at least for the time being. Each barrel of oil that goes into storage in consumer countries weakens the cartel’s hold on the market and potentially prolongs the price skid. OECD oil stocks currently stand at 56.4 days of demand, higher than Opec’s target of 52 days and hence the skid continues.

The emerging price meltdown would definitely require still deeper cuts by the Opec, and not increase it as some are requesting today. President Hu Jintao’s request needs to be seen in the above background. Will it help the producers achieve their objectives of ‘fair price’ is definitely another question.