An empirical analysis of the dynamic programming model of stockpile acquisition strategies for China's strategic petroleum reserve

Gang Wu, Ying Fan, Lancui Liu and Yi-Ming Wei

Energy Policy, 2008, vol. 36, issue 4, 1470-1478

Abstract: The world's future oil price is affected by many factors. The challenge, therefore, is how to select optimal stockpile acquisition strategies to minimize the cost of maintaining a reserve. This paper provides a new method for analyzing this problem using an uncertain dynamic programming model to analyze stockpile acquisition strategies for strategic petroleum reserve. Using this model, we quantify the impact of uncertain world oil price on optimal stockpile acquisition strategies of China's strategic petroleum reserve for the period 2007-2010 and 2011-2020. Our results show that the future stockpile acquisition is related to oil prices and their probability and, if not considering the occurrence of oil supply shortage, China should at least purchase 25 million barrels when world oil price is at an optimal level. The optimal price of stockpile acquisition of every year has a stronger relationship with the probability of high price; and the optimal expected price and size of stockpile acquisition is different in each year.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:36:y:2008:i:4:p:1470-1478

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