Optimal path for China's strategic petroleum reserve: A dynamic programming analysis

This paper proposes a dynamic programming model to explore the optimal stockpiling path for China's strategic petroleum reserve before 2020. The optimal oil acquisition sizes in 2008-2020 under different scenarios are estimated. The effects of oil price, risks and elasticity value on inventory size are further investigated. It is found that the optimal stockpile acquisition strategies are mainly determined by oil price and total inventory costs. While oil supply disruption is not considered, China's optimal stockpile acquisition rate increases from 19.2 to 52 million barrels from 2008 to 2020. If an oil supply disruption occurs, the oil acquisition rate will be reduced significantly. However, it may not be a good strategy to interrupt oil reserve activities in order to minimize the total costs for the entire planning period. (C) 2011 Elsevier B.V. All rights reserved.