Key Takeaways:
China's crude oil imports fell to their lowest in almost a decade in June, a 41.3% collapse that has helped cap global prices even as the Iran conflict disrupts supply through the Strait of Hormuz.
China imported 29.27 million tons of crude oil in June, or 7.12 million barrels per day, the lowest since October 2016, customs data showed Tuesday. The slump extended into June from May, with imports falling another 12% after hitting an eight-year low the prior month, as refinery run rates dropped to a ten-year low of 57.72%.
"The drop in refinery run rates was driven by weak domestic demand and refined oil product export restrictions imposed to safeguard energy supply after the Iran war began," said Emma Li, an analyst at ship-tracking firm Vortexa. "If export curbs are eased, run rates could see a partial rebound."
China's seaborne crude imports stood at about 6 million bpd in June, with shipments from the Middle East hitting their lowest level in a decade, according to Vortexa. Iranian crude imports also dropped 40% month on month to below 800,000 bpd. Commodity analysts Kpler tracked arrivals of 5.96 million bpd, down from an average of 10.66 million bpd in the three months before the U.S. and Israeli attack on Iran on Feb. 28.
The demand collapse matters because China, the world's biggest oil importer, has effectively become a shock absorber for a market roiled by the closure of the Strait of Hormuz, through which about 20% of global crude and refined products moved before the conflict. Lower Chinese purchases are freeing up barrels for other buyers, but the steep drop in fuel consumption also suggests the country can live on less oil thanks to its massive electric-vehicle fleet, which has permanently reduced gasoline demand.
Refined Products Face a Different Squeeze
While crude markets have found some relief from China's import slump, refined products tell a different story. Global diesel markets are tightening after Russia banned exports following Ukrainian drone strikes that damaged several refineries. Russia is the world's second-largest exporter of diesel, and the ban comes as peak demand arrives from northern-hemisphere agriculture and construction.
Asia's imports of light and middle distillates dropped to 5.19 million bpd in June, the lowest in Kpler records going back to 2017 and down 32% from the pre-war average of 6.85 million bpd. China's own exports of those products fell to a five-year low of 350,000 bpd in April after Beijing imposed informal export restrictions in March, though they recovered to 423,000 bpd by June.
Beijing has since relaxed those curbs, authorizing at least one private refiner to resume shipments alongside state-controlled companies. Trade sources expect China's exports of diesel, jet fuel and gasoline to rise to about 3 million metric tons in July, equivalent to nearly 800,000 bpd. Kpler is tracking July exports at 585,000 bpd so far, a figure likely to rise as more cargoes are assessed.
Prices Signal Persistent Tightness
The question is whether China's export rebound will be enough to ease supply pressures. Singapore gasoil, the building block for diesel, traded at $137.72 a barrel, 51% higher than the $91.42 on Feb. 27, the day before the conflict started. Brent crude ended at $83.30 on Monday, up 14.9% over the same period, showing that refined product markets remain far tighter than crude.
The 60-day ceasefire between the U.S. and Iran that took effect in June collapsed last week, with both sides resuming strikes and Tehran attacking ships moving through the Strait of Hormuz without its clearance. While enough crude transited during the brief truce to keep Asian refiners supplied through September, renewed threats to shipments from the Middle East and depleted global inventories suggest refined product prices will keep climbing.
Higher prices may encourage China to keep exporting to capture strong margins, even if crude imports do not recover to pre-war levels. Beijing could also dip into its vast crude stockpiles, betting that oil will be much cheaper once the conflict is resolved enough to allow vessels to move freely through the strait.
This article is for informational purposes only and does not constitute investment advice.
