- China has cut daily crude oil imports by roughly three million barrels since the Strait of Hormuz was effectively closed, helping keep Brent below $100 despite four months of war-related supply disruption.
- The shortfall is being bridged by a combination of reserve drawdowns, a shift from gasoline cars and flights to EVs and high-speed rail, and significant cuts to refinery and petrochemical run rates.
- The cushion may be running thin: feedstock shortages are emerging, producer prices rose 3.9% in May, and traders are watching for China to re-enter spot crude markets — a signal that demand suppression is ending.
- Analysts estimate China’s commercial reserves could sustain drawdowns of more than one million barrels a day for another six months, but the economic cost of running short on petrochemical inputs is beginning to show up in factory prices.
What Happened?
When the US and Israel attacked Iran and the Strait of Hormuz effectively closed, analysts widely expected oil prices to surge to $150–$200 a barrel and tip the global economy into recession. That hasn’t happened. Brent crude is trading below $100, and the explanation lies largely with China. Official customs data show Chinese crude imports fell to 7.8 million barrels a day in May — down from roughly 11 million barrels a day in recent years. The missing three million barrels equal the combined daily oil consumption of Italy and France. Beijing has plugged that gap by drawing on reserves it spent years stockpiling, diverting transportation demand to EVs and high-speed rail, and idling refineries and petrochemical plants that no longer have cheap feedstock to process.
Why It Matters?
China’s ability to absorb the Hormuz shock without visible economic disruption has been the single biggest stabilizing force in global energy markets since the war began. US crude export surges have helped on the supply side, but China’s demand suppression is arguably the more powerful variable — and the more fragile one. Refinery run rates have dropped 10 percentage points and steam cracker utilization is down 7 points, meaning China’s industrial supply chains are running increasingly lean on the plastics and chemical feedstocks that underpin manufacturing. Producer prices rising 3.9% in May is an early warning sign that the insulation is fraying. If Chinese factories face input shortages at scale, the cost gets exported globally through tighter supply chains and higher goods prices — a secondary inflation shock on top of already-elevated energy costs.
What’s Next?
Commodity traders are watching for China to return to spot crude markets in the coming weeks — if Beijing needs summer deliveries, buying must begin now. A resumption of significant Chinese purchasing would tighten global supply and likely push oil back toward and potentially above $100. The wildcard is how long China’s reserves can bridge the gap: Vortexa estimates commercial stocks alone could cover drawdowns exceeding one million barrels a day for another six months, buying Beijing considerable time. But the structural shift is also real — China’s EV penetration and rail investment mean its oil intensity per unit of economic activity is durably lower than it was even two years ago, which changes the baseline demand assumptions that underpinned pre-war oil price models.
Source: The Wall Street Journal
