A rapid decline in China’s oil imports has prevented oil prices from rising further since the outbreak of the US-Iranian war, but analysts warn that prices will need to rise as market balance gradually returns.
The Middle East conflict has entered its 100th day. But even though global oil supplies have fallen by 14% since fighting began on February 28, fears of a $200 a barrel price hike did not materialize.
Market strategists say China is acting as a key pressure valve in energy markets, and Beijing’s move to cut oil imports from 11.7 million barrels per day in February to just under 9 million barrels per day by the end of May is helping to ease the supply shock in the Strait of Hormuz.
Analysts at JPMorgan said China’s cuts accounted for about 74% of the decline in global oil imports, making up a “disproportionate” share of the adjustment and helping to keep oil prices “very moderate” four months into the civil war.
However, Société Générale warns that the market will eventually require higher oil prices going forward as global inventories are depleted and strategic reserves need to be rebuilt.
Commodity analysts at SocGen said in a note that global crude oil supplies have fallen by 14%, largely due to the closure of the Strait of Hormuz, and prices have increased by about 30%. In contrast, the 1973 OPEC oil embargo disrupted supply by about 7%, but caused prices to rise by about 134%.
Brent crude oil.
Analysts at SocGen said multiple factors, including strategic stock releases, reassuring signals from Washington and increased production in countries including Brazil and Venezuela, helped offset Hormuz’s supply tightness and avoid a repeat of the 1973 crisis.
But they pointed to China’s “significant” import cuts of around 3 million barrels per day and lower refining activity as key factors in rebalancing the market.
“This is one of the largest offsets to the shock, second only to Saudi Arabia’s rerouting flow and larger than the coordinated SPR announcements by the US, Europe and Japan,” said SocGen analysts led by FIC and head of commodity research Mike Haig.
About one-fifth of the world’s offshore oil supplies pass through the Strait, a narrow shipping lane between Iran and Oman.
new tension
Rory Green, head of emerging markets macro and strategy at GlobalData TS Lombard, said the large-scale and rapid electrification of China’s energy production and transportation from 2022 onwards will help move the country from energy equilibrium to “significant surpluses.”
In a note released in late May, Green said oil prices had not exceeded $200 a barrel “contrary to what many energy analysts expected at the outset of the Iran conflict,” adding that China’s “official and semi-official” oil reserves were also playing a role in softening prices.
brent crude oil Prices rose 4.9% to $97.67 per barrel on Monday after Israel and Iran exchanged missile strikes. It was the first direct targeting between the two countries since the ceasefire in April. Re-escalation also affected the US west texas intermediate Futures rose 4.9% to $94.93.
West Texas Intermediate Futures.
Analyst opinions are currently divided on the trend of oil prices.
Analysts at JPMorgan said in their base case that the Strait reopens in June, Brent crude oil will remain around $100 for the rest of 2026. If the closure is prolonged, the decline in inventory will accelerate, which we estimate will increase by about $5 in the third quarter and by about $15 in the fourth quarter.
Meanwhile, Fitch analysts said the late-July restart will cause Brent prices to “fall precipitously,” reaching an average of $70 per barrel from September, adding that the current rise reflects a “temporary logistics supply shock” rather than a permanent loss of production capacity.
But SocGen said strategic reserves needed to be rebuilt, adding that existing reserves needed additional supply and new oil production “needs stronger margins to move forward.”
SocGen’s commodity analysts added: “Taken together, the long-term equilibrium price for oil is likely to be higher than the current forward curve suggests.”
