Chinese refiners largely stopped competing for Middle Eastern crude during the Iran conflict, leaving more Gulf cargoes available to Europe, India, and the rest of Asia just as traders prepared for a supply shock.
The International Energy Agency (IEA) estimates China drew 41 million barrels from crude inventories during June, one of the largest monthly stock draws on record. Refiners met domestic demand from storage instead of replacing those barrels through imports, allowing Beijing to ride out the sharp jump in Middle Eastern crude prices caused by the conflict.
That inventory was accumulated well before the conflict. The U.S. Energy Information Administration estimates China spent much of 2025 buying roughly 900,000 barrels per day for strategic and commercial storage whenever prices softened.
Independent “teapot” refiners cut operating rates as weak refining margins, slowing fuel demand and higher crude prices squeezed profitability. Reuters reported that several refiners shifted purchases toward discounted Gulf grades and delayed Iranian cargoes, leaving millions of barrels floating offshore without immediate buyers.
China’s imports collapsed faster than refinery demand
Kpler estimated in late May that Chinese seaborne crude imports had fallen to 6.78 million barrels per day, the lowest level in nearly a decade, down from 8.5 million bpd in April and well below the 2025 average of 10.66 million bpd. Refinery intake, however, declined far less sharply, indicating that refiners were meeting the difference by drawing inventories.
In May, Kpler estimated that Chinese refiners still held more than 300 million barrels of crude in refinery storage, which would have been enough to offset the import shortfall for another 60 to 75 days without increasing purchases. At the same time, China’s strategic petroleum reserves grew by 8 million barrels after the conflict began, despite refinery inventories falling by 15 million barrels. In other words, Beijing preserved government-controlled stocks while commercial refiners supplied the market from their own tanks.
In a follow-up analysis published in a July blog, Kpler revised May imports to about 6.7 million bpd, 4.4 million bpd below the first-quarter average, while refinery runs had fallen by only 1.8 million bpd year over year to roughly 13.1 million bpd, confirming that stored crude had replaced imports.
According to Kpler, China’s absence changed Asian crude pricing.
China’s reduced buying left more Gulf crude available across Asia. Saudi Aramco responded by cutting the price of Arab Light to Asian buyers by $4 per barrel for June-loading cargoes, another $6 for July and a further $11 for August, leaving its flagship grade at a $1.50-per-barrel discount to the Oman-Dubai benchmark.
During the short-lived U.S.-Iran ceasefire, Chinese buyers became far more selective.
Reuters reported that privately owned Shenghong Petrochemical purchased roughly 12 million barrels of Iraqi, Abu Dhabi and Saudi crude for July arrival after Gulf producers lowered prices. Iranian crude became less competitive, with imports expected to fall to roughly 556,000 barrels per day in July, the lowest level since early 2023, while 30 million to 34.5 million barrels remained at sea awaiting buyers.
Crude accounted for nearly all of the Gulf’s export recovery.
The IEA estimates Gulf crude and condensate exports increased by 6.5 million barrels per day in June to 16.1 million bpd, representing 85% of the total recovery. Refined products and LPG remained below half of their pre-conflict export levels.
China’s retreat from Iranian crude left millions of barrels without buyers. Reuters estimates Iran loaded between 30 million and 34.5 million barrels of crude between mid-June and early July. However, many of those cargoes remained at sea or in floating storage around Southeast Asia as Chinese refiners shifted toward discounted supplies from Iraq, Abu Dhabi and Saudi Arabia. Iranian crude imports into China are expected to fall to about 556,000 barrels per day in July, the lowest level since early 2023.
Still, Kpler expects China to remain Iran’s principal customer but says subdued crude demand and narrowing discounts are limiting buying interest. The firm also expects Iran to move cargoes into offshore storage when immediate buyers can’t be found, allowing exports to continue while delaying final sales.
For decades, the oil market’s primary shock absorber was Saudi Arabia’s spare production capacity. When supply disappeared, traders watched Riyadh for signs that additional barrels were on the way. But China has very quietly introduced a second variable into that equation. Years of stockpiling have given the world’s largest crude importer the ability to step away from the market for weeks or even months, allowing commercial inventories to absorb supply disruptions instead of forcing an immediate scramble for replacement cargoes.
OPEC (Saudi Arabia) influences oil prices through production, but China is increasingly influencing them through the timing of its purchases. Traders have spent decades watching Saudi production quotas for signs of the next move in crude, but Chinese inventory levels are now becoming just as important.
By Julianne Geiger for Oilprice.com
