China returns to global oil market as Hormuz crisis squeezes supply

China, the world's largest crude oil importer, is stepping back into the global market after months of drawing down domestic stockpiles, adding fresh demand pressure to a supply picture already strained by the ongoing disruption of the Strait of Hormuz. Chinese crude imports rose 6.2% from July to 37.9 million tonnes in August, roughly 8.9 million barrels per day, marking the highest level in four months, according to official customs data.dailycaller+1

The shift comes as UBS ↘ 2.83% Chief Global Strategist Bhanu Baweja warned that financial markets are dangerously complacent about the risk of a sustained crude shock. Only about one-third of the normal 20.5 million barrels per day of crude and products is currently transiting the Strait of Hormuz, leaving roughly 14 million barrels a day missing from normal flows, Baweja told Moneycontrol in an interview published Tuesday.moneycontrol

A Cushion Removed

China had helped prevent a sharper price spike earlier this year by slashing purchases and relying on an estimated 1.5 billion barrels in strategic reserves built up while prices were lower. Chinese crude imports averaged just 8.1 million barrels per day during the second quarter, down 32% from the first quarter, according to the U.S. Energy Information Administration. That cushion is now eroding as Chinese refiners process crude faster than imports and domestic production can supply it. Reuters reported that Chinese refineries ran at roughly 13.91 million barrels per day in August while total supply reached only about 13.27 million barrels per day, producing an inventory draw of roughly 640,000 barrels per day.energiesmedia+1

Supply Squeeze Deepens

The renewed buying coincides with a worsening supply picture. Saudi Arabia shut down its East-West Pipeline on September 11 after escalating attacks from Iran-allied militant groups, closing a critical route that had been used to bypass the Strait of Hormuz, CNBC reported. Brent crude has climbed from roughly $100 per barrel in early September to above $105 by mid-month. Three Libyan oil field outages have further tightened available supplies.cnbc+2

"Oil prices will likely remain on an upwards trajectory regardless of what China does until at least one of the three major Middle East supply limiters are resolved," energy analyst David Blackmon told the Daily Caller News Foundation, pointing to the Saudi pipeline shutdown, Houthi threats in the Bab el-Mandeb Strait, and Iran's IRGC threats in the Strait of Hormuz.dailycaller

Beyond Fuel Prices

Baweja cautioned that the effects extend well past the pump. Higher naphtha and fertilizer costs could feed into food inflation with a lag, a particular concern for developing economies such as India where food and energy make up a large share of overall consumption. He flagged the November-to-February winter sowing season and El Niño risks as factors to watch.moneycontrol

U.S. refineries are already running near capacity at 97.6% of operable capacity, and the national average for on-highway diesel reached a record $6.285 per gallon for the week ending September 14, according to EIA data. "Refined products are a critical point in the global markets, and any refinery running hot will break down," Stuart Turley, CEO of the Sandstone Group, warned. "Oil will find a way, but refineries are built in decades."dailycaller