The world’s second-largest economy is playing an increasingly critical role in stabilizing the global oil market. Last year, it absorbed surplus barrels, supporting benchmark prices. In recent months, however, the trend has reversed. To mitigate the impacts of the Iran conflict, it tapped into reserves and implemented export limits, which led refiners to reduce purchases — providing other importers a chance to manage a severe supply crisis.
Despite a recent slowdown in traffic through the Strait of Hormuz, expectations are that China will adjust its strategy, significantly increasing reserves as early as the fourth quarter. Consultant FGE NexantECA anticipates stockpiling could hit 800,000 barrels per day.
“The developments in the Middle East will be crucial — whether the ceasefire holds and if oil flows through the Strait of Hormuz maintain early-July levels or rise further,” said Muyu Xu, a senior crude analyst at Kpler. “I expect refiners to seize the opportunity presented by lower oil prices and improved supply to replenish some of their commercial inventories.”
The Persian Gulf will undoubtedly dictate China’s enthusiasm for re-entering the market. An interim peace agreement signed last month appears increasingly fragile, with recent strikes and counterstrikes, alongside assaults on vessels in the Strait of Hormuz.
Currently, however, China is showing signs of renewed interest. In recent weeks, Chinese refiners have returned for inexpensive Middle Eastern crude as producers moved to clear backlogs. Independent processors like Rongsheng Petrochemical Co. have purchased from Saudi Arabia, Iraq, and the United Arab Emirates as prices for these varieties declined, traders report. Unipec, part of Sinopec Group, also sourced oil from the UAE.
“By cutting demand during this crisis, it helped stabilize the market, and now all eyes are on the revival of Chinese purchasing,” noted Energy Aspects analysts led by Amrita Sen in a research note from June 29.
Energy Aspects predicts that China’s seaborne and pipeline imports will revert to pre-war levels by the fourth quarter. The firm estimates inflows at around 7.6 million barrels a day in July, a 19% increase from June, and projected to surpass 11 million barrels a day in November, nearing pre-war figures.
Beijing’s imports would bolster the benchmark price — already elevated due to renewed tensions in the Persian Gulf — although costs may remain prohibitive for robust purchasing. Brent crude is below its wartime peak but approached $80 a barrel on Monday amid ongoing conflicts.
“China will want and need to replenish its oil reserves, but given the magnitude of its inventories, the country can afford to wait until the price is right,” commented Erica Downs, a senior research scholar at Columbia University’s Center on Global Energy Policy.
China might also gain from the U.S.’s choice to eliminate a temporary waiver on Iranian crude. This has left numerous sanctioned barrels on tankers seeking buyers, predominantly amongst Beijing’s private refiners who are keen on discounted crude.
China’s extensive reserves include both commercial and strategic petroleum volumes, assisting the nation in managing availability and price fluctuations. The Strategic Petroleum Reserve (SPR) is closely held as a state secret, with its long-term targets remaining ambiguous, complicating efforts to assess inventory levels or buying momentum.
Third-party data sources provide some insight into the overall size of strategic and commercial reserves. Following the inventory release authorized by Beijing in April, Kpler estimates reserves are approximately 1.2 billion barrels. The analytics firm projects stockpiles declined at about 585,000 barrels per day since early May, while Energy Aspects reported a drop exceeding 1 million barrels daily in June.
This trend is expected to reverse starting in the fourth quarter, as the focus shifts toward energy security and the demands of a growing petrochemical sector counterbalance decreased demand from vehicle drivers. Horizon Insights anticipates an increase of 500,000 barrels per day, while Energy Aspects projects inventory additions to rise to around 300,000 a day by November, with potential for more. Goldman Sachs estimates a rise to 520,000 barrels a day by 2027.
Also Read: Brent crude can rise to $87/bbl if Strait of Hormuz uncertainty persists: ETO Markets
