Goldman Sachs warns oil could spike as China’s demand cushion wears thin

For nearly five months, China's dramatic withdrawal from international crude oil markets has acted as an unintended pressure valve, preventing the Iran war's supply disruption from sending prices to record highs. That buffer is now running thin.

Goldman Sachs The Goldman Sachs Group, Inc. ↘ 2.14% warned this week that the market remains vulnerable to a fresh price spike as China is expected to return to buying crude to rebuild stockpiles while global emergency inventories have been depleted by the conflict. The bank said Brent crude could rise above $110 a barrel if disruptions to the Strait of Hormuz persist.tradearabia

The China Cushion

Since the Iran war broke out in late February, China has slashed crude imports by roughly 4 million barrels per day from pre-conflict levels, drawing instead on domestic stockpiles estimated at 1.2 to 1.4 billion barrels at the end of 2025. Chinese imports fell 41.3% year-on-year in June to just 7.12 million barrels per day, the lowest in nearly a decade.finance.yahoo+3

Reuters reported on Thursday that China has averaged just 8 million barrels per day of imports since April, down from a five-year average of 11.5 million. That reduction — equivalent to roughly 3.5% of global demand — freed cargoes for other importers and helped Brent crude retreat from a peak of around $126 per barrel in April to levels below its pre-war price.reuters+1

Buffers Running Dry

The International Energy Agency coordinated a record release of about 400 million barrels from emergency reserves during the conflict, while the United States sold 133 million barrels from its Strategic Petroleum Reserve. The International Monetary Fund warned this week that much of that cushion has now been exhausted.reuters+1

A Brookings Institution analysis published in May estimated that by mid-July, "the full extent of temporary buffers will have been exhausted, with an overall market adjustment of 7.1 mb/d needing to be absorbed".brookings

Re-escalation Compounds Risk

The timing is precarious. Reuters reported on Wednesday that a week-long military escalation between the United States and Iran has largely unraveled last month's truce, with six consecutive nights of U.S. strikes and renewed disruption to tanker traffic through the Strait of Hormuz.reuters

As Goldman Sachs noted, the combination of slowing Hormuz traffic, dwindling reserves, and the prospect of renewed Chinese buying has created "a stronger structural floor under oil prices". Analysts at Kpler cautioned that China remains a passive buyer for now, but once stockpile drawdowns force Beijing back into the market, the current equilibrium could shift quickly.kpler+1