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While US inventories and China's lower crude imports have helped ease pressure in the global oil market, falling refinery activity and increasing domestic demand constraints may tighten supplies if China increases imports in the coming months, according to a report by ANZ.
China's crude imports have dropped from about 12.5 mb/d to around 2.5 mb/d after the Strait of Hormuz closure, resulting in an estimated cumulative savings of over 60 mbbl compared to pre-escalation levels, as per the report. "Assuming imports would have stayed at the levels they were at prior to late February's escalation of the Middle East conflict, the cumulative amount saved by China's reduced purchases is more than 60mbbl," the report said. This comes amid concerns over demand. As per the report, soft manufacturing activity coupled with increasing electric vehicle adoption, reduced domestic flights and constrained petrochemical feedstock imports from the Middle East have likely cut China's oil demand by around 1 mb/d over the past month or so. "This has been exacerbated by a slowdown in refining activity, reflecting high crude premiums, elevated freight and insurance costs and issues over refining and inventory valuation losses. Even so, we don't expect this to be a long-term trend. A gradual rebound in mobility and feedstock flows improve things," the report said. China appears to have increasingly drawn on its own oil inventories. The market's capacity to accommodate the extra OPEC supply in 2025--after the organization reversed 2.2 million barrels per day of production cuts--was largely due to China absorbing the surplus, as per the report. "We estimate that its stockpile has grown 190mbbl since the beginning of 2025, with its inventory now sitting somewhere around 1.7bn barrels," it said. According to then report, China appears to have managed the supply shortfall majorly by reducing refinery run rates rather than by digging deep into its strategic reserves. However, that approach cannot last indefinitely. "Any shift in this dynamic will have major repercussions for the oil market. If China is reluctant to dip heavily into its strategic reserves, we should see imports rise in coming months, which could further tighten the physical market," the report said. (ANI)
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