China's crude inventory can still absorb the Hormuz shock, but the buffer may narrow noticeably around 4Q26

Overview

The report discusses how China has cushioned the global oil market after the US-Iran conflict and disruption to shipping through the Strait of Hormuz by sharply reducing seaborne crude imports, lowering refinery utilization, curbing finished product exports, and drawing down both strategic and commercial inventories. The core thesis is that while China's inventory buffer is large, it is not infinite; if imports remain low, China may need to resume procurement around 4Q26, tightening the global oil balance and supporting oil prices.

Core views

The report believes that oil markets are currently somewhat optimistic in pricing conflict resolution and supply normalization. Although flows through the Strait recovered to around 6.5MMbbls/d in June, they remain only about one-third of pre-conflict levels and remain highly volatile. China's import reduction has freed crude for other buyers, limiting further upside in oil prices. But inventory depletion may be running near 100MMbbls per month; if this continues into 4Q26, China's inventory coverage could approach 60 days, increasing the risk of a re-tightening in the global oil market.

Analysis framework

The report combines Strait of Hormuz liquid fuels flow, vessel-tracking import data, official import data, refinery throughput, independent refining utilization rates in Shandong, finished fuel exports, monthly inventory changes, and an oil price sensitivity table to derive how long China's inventories can sustain the current low-import regime and to estimate upside in Asia-Pacific oil and gas equity valuations under DCF oil price scenarios.

Methodology notes

• Supply-demand balanceCrude inventory coverage-day calculation

  Estimate how long China can maintain low imports using inventory levels, monthly inventory changes, and demand coverage days.

  The report compares China's pre-conflict roughly 90-day coverage with a 60-day coverage threshold and estimates that if the import gap persists, inventories could fall to about 60 days in 4Q26.

• Market data trackingCross-checking vessel-tracking and official import data

  Use high-frequency vessel-tracking data to complement official import statistics and track the magnitude of import decline.

  Official data indicates imports fell about 30% in May, while vessel-tracking suggests the decline may have widened to about 50% in July.

• Valuation methodsDCF oil-price sensitivity analysis

  Estimate per-share DCF valuation for oil and gas companies under different long-term Brent price assumptions.

  The report presents valuation sensitivity for PetroChina, Sinopec, CNOOC, Woodside, Santos, Inpex, and PTTEP under long-term Brent scenarios of US$50-100/bbl, and notes an average sector potential return of about 25% under a US$75/bbl assumption.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Brent crude oil

  directly affected by Hormuz supply, global inventories, and China's replenishment pace

  Strengths

  If supply disruptions persist and China resumes imports, upside momentum for prices strengthens.

  Weaknesses

  If the conflict resolves quickly or supply recovers, risk premium may compress.

  Comparison

  The report believes Brent returning to the US$70s and near US$80/bbl is still below levels seen during conflict peaks.

  Risks

  Geopolitical de-escalation, weaker demand, or faster-than-expected inventory release.

• CNOOC

  One of Bernstein's covered Asia-Pacific oil and gas stocks, benefiting from oil-price upside

  Strengths

  The report says it has significant upside potential at current valuation.

  Weaknesses

  Chinese oil companies are relatively defensive, and oil beta may be lower than that of some higher-beta E&P peers.

  Comparison

  Listed as having the largest upside alongside Santos and PetroChina.

  Risks

  Oil price declines, policy constraints, higher costs, or production below expectations.

• PetroChina

  A Bernstein-covered Chinese oil company influenced by oil prices and China's energy balance

  Strengths

  The report says PetroChina has substantial potential upside at current valuation.

  Weaknesses

  Operations are jointly affected by domestic fuel marketing, refining, and policy factors.

  Comparison

  The DCF sensitivity table covers PetroChina (H) and shows valuation support under a US$75/bbl long-term price assumption.

  Risks

  Oil prices below long-term assumptions, volatile downstream refining margins, and changes in policy or replenishment timing.

• Santos

  An Asia-Pacific E&P company with relatively high oil-price sensitivity

  Strengths

  The report says Santos has high oil beta relative to peers and sizable upside.

  Weaknesses

  Higher price sensitivity also implies heavier equity downside pressure if oil prices fall.

  Comparison

  Grouped with Inpex and PTTEP as Asia-Pacific E&P names with higher oil-price sensitivity.

  Risks

  Brent price pullback, project execution risk, and changes in natural gas price assumptions.

Key data

• Strait of Hormuz flow recovery levelabout 6.5MMbbls/dBy end-June, still about one-third of pre-conflict levels.
• China crude import reductionabout 6MMbbls/dDown from about 11MMbbls/d before the conflict to about 4.8-5MMbbls/d.
• Cumulative import lossabout 418MMbblsThe report also cites cumulative import losses of about 3.4MMbbls/d since March.
• Decline in refinery runsabout 3MMbbls/dLower compared with the prior peak since March, partially offsetting the import gap.
• Finished product export declinedown to about 0.3MMbbls/d, about 50% of pre-conflict levelsDiesel and gasoline exports have effectively fallen to near-negligible levels.
• Inventory changesabout -30MMbbls in May, about -72MMbbls in June, possibly close to -100MMbbls in JulyShows that the pace of inventory drawdown is accelerating.
• Estimated inventory stockabout 1,510MMbbls at end of May, possibly about 1,336MMbbls by end of JulyIncludes strategic reserves and commercial inventories.
• Inventory for 60 days of coverageabout 960MMbblsThe report infers that around 400MMbbls of buffer remains.
• Long-term oil price assumptionUS$75/bblUnder this assumption, average potential upside for the covered oil and gas sector is about 25%.

Impact & implications

If Hormuz supply disruption persists, China may shift from being an 'absorber' of oil market shocks to a source of demand for replenishment. In the near term, reduced Chinese imports have capped oil price upside. But when inventory coverage approaches 60 days, renewed procurement could tighten global inventories further and add upward pressure on oil prices. From an allocation perspective, the report leans to Asia-Pacific oil and gas equities being relatively attractive, especially names with higher oil-price sensitivity and greater valuation upside.

Risks

• If the US-Iran conflict and Hormuz navigation normalize quickly, the oil price risk premium may decline.
• China may be willing to let inventory coverage fall below the report's assumed 60 days, extending the low-import posture.
• Weakening global demand could offset the price support from supply disruption.
• There are timing and methodology differences between vessel-tracking data and official import statistics.
• Oil and gas stock valuations are sensitive to assumptions on long-term oil prices, exchange rates, costs, capital expenditure, and policy.

What to watch

• Whether liquid fuel flows through the Strait of Hormuz recover stably back to pre-conflict levels.
• Whether China’s seaborne crude imports rebound from around 5MMbbls/d.
• Whether China’s monthly crude inventory drawdown continues to approach 100MMbbls.
• Whether Shandong independent refinery utilization and nationwide refinery throughput continue to fall.
• Whether diesel, gasoline, and other finished fuel exports recover.
• Whether Brent oil prices break above and hold above US$80/bbl.
• Whether China enters a stronger replenishment cycle around 4Q26.