China Blunts $200 Oil Calls as Price Of Oil Holds Near $94
Oil’s price of oil hovered around $94 a barrel on Wednesday, far below earlier calls for more than $200 a barrel as the Iran war and the Strait of Hormuz closure tightened supply. For refiners, shippers and fuel buyers, that gap is the difference between a shock that would have forced rationing and a market that is still expensive but far more manageable.
China’s 7.8 Million-Barrel Pullback
7.8 million barrels a day was China’s crude import level in May, down from about 11 million barrels a day on average over the last five years. That drop helped account for about 74% of the world’s decrease in global crude oil trade, making China the main force offsetting the loss of supply through Hormuz.
1.4 billion barrels is the size of China’s total oil stockpiles, giving Beijing room to slow purchases without immediately forcing a bigger price spike. Michal Meidan, head of China energy research at the Oxford Institute for Energy Studies, said in a recent report: “How low could imports (and refinery runs) go before China must tap into its stocks more meaningfully or resume crude buying even at higher costs?”
Hormuz and the 30% Price Move
14% is the estimated loss in global crude supply from the Strait of Hormuz closure cited by Societe Generale analysts, and they said that disruption has lifted prices by about 30%. About 20% of the world’s oil supply moves through the strait, so the route’s effective closure has been severe even without producing the kind of price jump analysts once feared.
30% is also a reminder that prices have moved sharply, just not enough to match the early-war forecasts of more than $200 a barrel. A month ago, crude was at $104 per barrel, so the latest $94 reading leaves the market down $10 from that level even with a major shipping choke point shut.
JPMorgan on Calm Prices
This week, JPMorgan analysts wrote: “As the conflict enters its fourth month, one development stands out: prices have become remarkably calm.” That calm reflects more than one force, including China’s reduced demand and the use of strategic reserves, which have given the market a cushion while the war drags on.
7% was the share of global crude supply disrupted in the 1973 OPEC oil embargo, a smaller hit than today’s 14% loss estimate, yet prices then rose by more than 130%. If current supply pressure stays near present levels, the question for buyers is whether China’s stockpiles and lower imports can keep doing the heavy lifting before Beijing has to return to the market at higher prices. Michal Meidan also asked: “What does this mean for product supplies and to what extent can coal-to-chemicals offset the loss of oil-based chemicals? And what is driving these decisions?”
