China May Be Poised to Eliminate Oil’s Biggest Source of Support

• The global oil market is losing many of its key shock absorbers as inventories remain tight, shipments through the Strait of Hormuz face ongoing disruptions, and spare supply continues to shrink, increasing the likelihood of stronger oil prices.
• One factor that has kept prices from climbing further is China’s sharp decline in crude oil imports. However, analysts believe that support may soon disappear, with the world’s largest oil importer expected to return to the market after drawing down its existing stockpiles.
• Should disruptions in the Strait of Hormuz continue while Chinese buying accelerates, market analysts warn that global oil supplies could tighten considerably. The resulting imbalance between supply and demand may place the greatest upward pressure on crude prices in the latter part of the year.

The oil market could soon lose the key supply and demand buffers that have prevented crude prices from surging despite the massive disruption to shipments through the Strait of Hormuz.

A temporary U.S.-Iran memorandum of understanding had allowed Middle Eastern producers to accelerate exports of crude that had accumulated in Gulf storage over the previous four months. That opportunity has now effectively ended as hostilities resumed and the ceasefire collapsed.

At the same time, crude and refined fuel inventories across major consuming regions, including the United States, have fallen to critically low levels. Much of the oil released through the largest coordinated strategic stock drawdown in history has already reached refiners, leaving few reserves available to cushion further supply shocks.

Another important stabilizing factor may also be fading. China, whose reduced crude imports have helped moderate global demand in recent months, is expected to return to the market soon. If that happens, one of the largest forces restraining oil prices during the March-to-June period could disappear.

China’s Demand May Be Reawakening

China cut crude imports to their lowest level in a decade during June, extending three months of unusually weak buying as elevated prices and constrained Middle Eastern supplies discouraged purchases. Compared with its 2025 average, imports are estimated to have declined by roughly 4.4 million barrels per day.

Official customs figures showed June crude imports totaled 29.27 million metric tons, or about 7.12 million barrels per day—down 41.3% from the same month a year earlier and marking the weakest monthly import level since October 2016.

The country’s large commercial and strategic reserves, accumulated before the conflict with Iran intensified, allowed Beijing to sharply reduce imports while still meeting domestic demand. Those stockpiles have acted as a major buffer for the global market, helping prevent prices from soaring despite the disruption of more than 10 million barrels per day of oil flows through the Strait of Hormuz.

As the world’s largest crude importer, China entered the supply crisis better prepared than any other major consumer. Analysts estimate it built reserves of between 1.2 billion and 1.3 billion barrels before the conflict began, although the true size of those inventories remains uncertain because official data are limited.

Recent estimates suggest China began drawing on those reserves in May and continued doing so through June. According to the International Energy Agency (IEA), inventories declined by roughly 41 million barrels last month.

While Goldman Sachs believes China still holds ample reserves and faces no immediate pressure to increase purchases, analysts expect the turning point may be approaching. Lower official selling prices from Gulf producers for July and August could encourage Chinese refiners to step up imports in the coming months.

Since the Middle East conflict escalated in February, China’s restrained buying has effectively acted as the global oil market’s swing demand factor. If imports recover, that important demand buffer could disappear.

Shrinking Inventories Raise Risks

A rebound in Chinese demand could coincide with continuing uncertainty surrounding the Strait of Hormuz, where shipping activity remains well below the pace seen during the brief period following the U.S.-Iran agreement.

Any renewed disruption to tanker traffic would further delay the recovery of Middle Eastern exports and tighten global supplies of both crude oil and refined fuels.

According to Energy Aspects founder Amrita Sen, slower vessel movements through the Strait, combined with renewed U.S. restrictions on Iranian oil exports and rapidly declining inventories, are laying the groundwork for higher oil prices if current conditions persist.

Sen estimates that global oil inventories have fallen by roughly 600–700 million barrels since the crisis began. She warned that if the current situation extends into the end of this month or early next month, the market may face its greatest pressure later in the third quarter or early in the fourth quarter.

Speaking separately to the Financial Times, Sen said that nearly all excess commercial inventories have now been exhausted, leaving only government-held strategic reserves as a meaningful emergency backstop. As a result, confidence that oil flows through the Strait of Hormuz will remain uninterrupted is increasingly being tested.