The Iran War and the oil and gas market disruption it has caused have prompted a massive drop in Chinese crude oil imports. These were estimated at a little over 6 million barrels daily last month, down from almost 11.40 million barrels daily in February. The twist: China is the country that can afford such a slump, thanks to its inventories.
May imports stood at a daily average of 6.36 million barrels, Kpler data cited by Reuters’ Clyde Russell showed this week. This was down from 8.10 million barrels daily for the previous month and from 11.39 million barrels daily for February—the last pre-war month. Demand, however, has not fallen by anything near the import drop.
According to Kpler again, China’s refiners were processing crude at a daily rate of 13.5 million barrels last month. Now, that was down by an estimated 154,000 barrels daily from April and also much lower than the May 2025 processing rates, at minus 1.9 million barrels. However, these declines are significantly more modest than the drop in crude oil imports last month. Because China has a massive inventory cushion, arguably created for precisely such an eventuality.
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For over a year before the United States and Israel launched the first strikes against Iran, China had been buying more crude oil than it could consume and export, taking advantage of stable prices and discounts for sanctioned crude from Russia and Iran. The country does not report inventory numbers, but analysts estimate them on the basis of import and refinery runs data. Based on those estimates, China was seen stockpiling crude at a rate of between 900,000 barrels and a million barrels daily last year.
As a result, it accumulated about 1 billion barrels in spare oil, which refiners have now tapped to make up for lost supply without going bankrupt with the bill. According to many in the analytical community, China’s import cuts and the use of oil inventories have helped to prevent a much greater price spike in international oil benchmarks. What’s more, the stockpile buildout was a long-term plan.
A Reuters report from last October said China was building as many as 11 new oil storage facilities, aiming for 169 million barrels in additional storage capacity, to be completed by the end of this year. The new capacity is equal to two weeks’ worth of crude oil imports and would add to oil storage capacity additions of between 180 and 190 million barrels for the period between 2020 and 2024, data from Kpler and Vortexa showed at the time.
Somewhat ironically, China’s substantial crude stockpile was cited by analysts last year as a big reason for the price depression, driven by predictions of a significant crude glut, amounting to some 3 million barrels daily, expected to materialize this year. The war between the U.S. and Israel, and Iran, however, canceled all these predictions, instead flipping the world into a growing deficit, with a growing number of commentators warning that the full impact of the war is about to become palpable by July.
In a sense, then, China’s stockpiles have remained a factor depressing prices or, more accurately, keeping a lid on them for the time being, allowing the country to keep consuming oil at relatively unchanged rates without Brent crude hitting $150 per barrel, and without doubling its oil import bill. However, even China’s inventories will not last forever. And chances are Beijing would not want to see them depleted like the U.S. SPR, which means later in the year Chinese buyers will start reversing the import decline. Where prices would go then remains to be seen.
By Charles Kennedy for Oilprice.com
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