Key facts
- China's crude oil imports are projected to reach 9.9 million barrels per day in the fourth quarter.
- The country has utilized over 1.2 billion barrels of strategic oil reserves to manage market volatility.
- China has reduced its seaborne crude imports by over three million barrels per day since March.
- Restrictions on refined product exports have been partially lifted, with up to 2.7 million metric tons approved for August.
- Analysts suggest China will resume filling reserves only after stabilization in the Strait of Hormuz and a price discount.
China's crude oil imports are anticipated to rise to approximately 9.9 million barrels per day in the fourth quarter, though this figure remains below pre-war levels. The nation has strategically managed its oil supply by relying on its extensive reserves, estimated at over 1.2 billion barrels, rather than purchasing crude at inflated prices driven by geopolitical tensions, particularly concerning the Strait of Hormuz.
This policy has helped to buffer global oil markets from the full impact of supply disruptions. Historically, smaller disruptions to global supply have led to significant price surges, but current price increases have been more moderate. This resilience is attributed to coordinated emergency releases from the International Energy Agency and reduced consumption in Asia, especially China.
China has significantly reduced its seaborne crude imports since March, by over three million barrels per day. Instead of buying oil at high wartime prices, Beijing has prioritized its domestic market by restricting exports of refined products like diesel, gasoline, and jet fuel, and by scaling back refinery activity. Commodity traders describe this as a strategy of "preserving a high cushion" by using reserves as a buffer.
In recent weeks, China has begun to ease some restrictions on refined product exports and has imported some Gulf crude. Analysts suggest that when China eventually resumes full restocking of its reserves, it could substantially impact global oil markets. The July surplus in China's trade balance reflected refiners slowing output more than imports dropped, indicating a pause in destocking rather than aggressive restocking.
Factors influencing China's purchasing decisions include improved refiner margins due to a drop in crude oil prices and the ongoing instability in the Strait of Hormuz. The easing of refined fuel export limits suggests a degree of optimism about global oil supplies normalizing, though this optimism may be tempered by the continued geopolitical risks. China's reserves are substantial, providing over 100 days of net import cover.
Analysts believe China will only resume filling its strategic reserves from the Gulf when the Strait of Hormuz stabilizes and a meaningful discount on Gulf barrels is available compared to alternatives. The reopening of Hormuz or the scaling up of bypass routes from Saudi Arabia and the UAE are key conditions. If disruptions persist without these bypass routes being reinforced, China's return to the market could push prices higher. Currently, China's reserves have acted as a price deflator, absorbing much of the shock from Hormuz closures, but this could reverse once restocking begins, potentially turning China into an oil price inflator.