The Next Oil Rally May Depend On China, Not The Middle East

Key Points:

• Chinese refiners significantly reduced imports of Middle Eastern crude amid the Iran conflict, relying instead on large pre-existing crude inventories to meet domestic demand and avoid high prices.
• China’s crude imports fell sharply to about 6.7 million barrels per day in May, the lowest in nearly a decade, while refinery runs declined less, indicating inventory drawdowns offset the import shortfall.
• The reduced Chinese demand left more Gulf crude available for other Asian markets, prompting Saudi Aramco to cut prices on Arab Light crude to Asian buyers by up to $11 per barrel for later months.
• Iranian crude exports faced delays and lower demand, with millions of barrels remaining in floating storage as Chinese refiners shifted toward discounted crude from Iraq, Abu Dhabi, and Saudi Arabia.
• China’s strategic and commercial crude stockpiling is increasingly influencing global oil pricing dynamics, adding a new variable alongside traditional Saudi production capacity in managing supply shocks.