Despite global oil markets being in backwardation, a state where current prices exceed future delivery prices and typically discourages storage, China has been actively stockpiling crude oil.
This unusual move, while providing a temporary price floor by absorbing surplus supply, faces limitations due to geopolitical factors, shifts in global supply, and potential policy changes from Beijing, all while other nations have seen their crude inventories decline.
“It is important to note that China’s crude inventory changes are a critical buffer for the global oil market, and not a permanent solution,” Lin Ye, vice president, oil markets, downstream at Rystad Energy, said in an emailed commentary.
Chinese buyers gobble up crude
Continued sanctions on Iranian oil exports have led to the development of a mature trading system, which includes the use of “dark fleets” to transport crude oil from Iran, primarily to a few Chinese ports in Shandong, Rystad Energy’s analysis showed.
In early January this year, sanctions imposed by former US President Joe Biden’s administration on Russia further increased the risks associated with crude oil exports for Russia, Iran, and Venezuela.
Although China’s imports from these three nations experienced a significant decline in January, they began to rebound in February and reached a new peak in March as new workarounds were established.
In anticipation of stricter Western sanctions and the implementation of several sanction packages, Chinese independent refiners, known for their risk-taking approach, and other supply chain participants seized the opportunity to import and stockpile as much crude as possible, Rystad said.
More arrivals of Iranian crude are expected in September, as there are still many barrels awaiting discharge at Chinese ports.
After the tariff war, China has shifted its natural gas liquid (NGL) import sources away from the US, despite ethane and propane purchases from the US being exempt from higher tariffs.
Nevertheless, the two largest global economies still face the risk of decoupling, according to the Norway-based energy intelligence company.
Imported ethane and propane provide alternative methods for producing ethylene and propylene, supplementing imported naphtha and light feedstocks from refineries.
Cheaper crude oil
Although discounted crude has been added to inventories since March, oil prices began to decline in April, coinciding with US President Donald Trump’s Liberation Day.
Data from China customs indicated a sharp drop in the average crude import cost starting in April, reaching $72.7 per barrel, Rystad said. This marked the lowest price observed since the beginning of the COVID-19 pandemic.
In the subsequent months, the landed cost further decreased to below $70 per barrel, mirroring a broader decline in Brent crude prices, the agency said.
In April and May, Saudi Arabia reduced its official selling prices (OSPs) to regain market share in Asia. This strategy also supported the competitive advantage of crude grades specifically designed for Chinese refineries.
Fundamentals
“April and May denote the heavy maintenance season for China’s state-owned sector, as independent refiners usually avoid this period for their own turnarounds,” Rystad said.
Sinopec experienced significant capacity losses in April and May, with approximately 1.2 million barrels per day due to a high number of refinery outages.
As a result, the company is expected to increase production once these refineries are back online. This aligns with China’s long-term strategy of prioritising energy security and expanding its crude oil storage capacity.
The country’s total crude storage capacity saw a significant increase from 1.4 billion barrels in 2015 to 2.03 billion barrels by the close of 2024.
An additional 124 million barrels of capacity is projected to be operational by the end of the current year.
China’s crude storage capacity is projected to increase, enhancing the nation’s energy security.
This expansion is expected despite a plateau in the country’s refinery operations, according to publicly available information on future crude storage projects.
How long will China stockpile?
Although China’s crude stockpiling decelerated in July and August, it is projected to regain momentum in September.
“In our base case scenario, 4Q 2025 will likely see China building stocks again and in 2026, although a lower level of build is expected on average in 2026 compared to this year,” Rystad said.
We also believe that the drivers of China’s crude stockpiling will remain, especially as geopolitical risks remain.
Rystad Energy suggests that a crude surplus of 2.14 million barrels per day from the fourth quarter of 2025 will likely depress oil prices.
This surplus is attributed to the rapid reversal of OPEC+ production cuts and an increase in non-OPEC supply. The anticipated lower prices are expected to create economic incentives for stockpiling.
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