China's SPR is temporarily serving as a buffer for global oil markets, but restocking demand could push oil prices higher again

Overview

This report analyzes how China temporarily became a “shock absorber” for global oil markets after the Iran war and the closure of the Strait of Hormuz by sharply reducing crude oil imports and drawing on strategic petroleum reserves. China is the world's largest crude oil importer, with imports reaching 11.6mbpd in 2025, equivalent to approximately 73% of domestic consumption and approximately 10.9% of global production. After the conflict erupted, China's imports fell rapidly, helping suppress international oil prices, but its inventory buffer is not unlimited.

Core views

The core view is that the decline in China's imports was driven primarily by SPR releases, rather than domestic crude oil production increases, electricity substitution, price-suppressed fuel demand, or refined product export restrictions. China held approximately 1.2-1.3bn barrels of SPR at end-2025, equivalent to approximately 112 days of net crude oil imports; by end-June 2026, approximately 19% had been consumed. China still has the capacity to absorb further shocks in the short term, but Beijing is likely to gradually resume imports once oil prices return to a comfortable range for energy-security reasons, with restocking potentially accelerating if Brent falls below USD60/bbl.

Analysis framework

The report assesses the main source of China's import cuts by decomposing changes in crude oil imports, domestic crude oil production, electricity consumption, EV penetration, refined product imports and exports, and estimated SPR inventories. Its methodology uses end-2025 as the pre-war inventory baseline, assumes that normal import growth excludes incremental SPR demand, and estimates inventory accumulation and releases from import shortfalls in Q1 and Q2 2026.

Methodology notes

• Supply-demand balance analysisCrude oil import shortfall decomposition

  Decompose the decline in imports into inventory releases, domestic production increases, demand suppression, energy substitution, and changes in refined product trade.

  The report rules out domestic production increases, electricity substitution, and refined product export restrictions as sufficient explanations, concluding that SPR releases were the main source of the sharp import decline in Q2.

• Inventory coverage analysisSPR days-of-cover method

  Measure the energy-security buffer by dividing strategic reserve volumes by net import demand.

  China's approximately 1,250mb SPR at end-2025 covered approximately 112 days of net crude oil imports, a very large absolute volume but fewer days of coverage than Japan and South Korea, at more than approximately 200 days.

• Scenario analysisBrent price trigger for restocking assessment

  Use the oil price comfort zone to assess when China may resume imports and replenish its SPR.

  The report suggests that the rebound in July imports may correspond to purchases made when Brent previously fell below USD90/bbl; if Brent falls below USD60/bbl, China may significantly increase imports for restocking.

Asset mapping & comparison

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

• Brent crude oil/global oil prices

  China's import cuts temporarily reduced demand and eased pressure on oil prices; subsequent restocking would add demand.

  Strengths

  China's SPR releases provided a temporary buffer for global markets, reducing the probability of an extreme price shock.

  Weaknesses

  The buffer depends on inventory depletion and cannot permanently substitute for the restoration of Strait of Hormuz supplies.

  Comparison

  Compared with coordinated IEA releases, China is not an IEA member, but its absolute inventory volume is larger and its impact on marginal demand is significant.

  Risks

  If China rapidly restocks when oil prices are low, it could combine with supply shortages to push Brent higher.

• China's strategic petroleum reserve (SPR)

  The core explanatory variable for the current decline in imports and an energy-security buffer.

  Strengths

  The absolute volume was approximately 1.2-1.3bn barrels at end-2025, among the world's largest, covering approximately 112 days of net imports.

  Weaknesses

  Coverage in import days is lower than in Japan and South Korea, and approximately 19% had already been consumed by end-June.

  Comparison

  China's absolute inventory is larger than the US SPR, but its coverage in net import days is below approximately 200 days for Japan and approximately 208 days for South Korea.

  Risks

  If the crisis persists, the rate of inventory depletion could force Beijing to resume imports earlier.

• China's refining and refined product markets

  The decline in imports affects crude processing and refined product supply and demand; export restrictions provide only a partial buffer.

  Strengths

  Policies can preserve domestic supply by restricting some fuel exports.

  Weaknesses

  Refined product imports also fell sharply, meaning domestic markets may still depend on inventories or additional crude processing.

  Comparison

  Compared with SPR releases, refined product export restrictions have less explanatory power for the decline in imports.

  Risks

  If net refined product outflows persist, pressure on domestic inventories and refinery operations could increase.

• China's electrification and power system

  Long-term reduction in fuel demand, but unable to replace the crude oil import shortfall in the short term.

  Strengths

  Rapidly rising EV penetration should help structurally reduce transportation fuel demand.

  Weaknesses

  EV charging accounts for less than 2% of nationwide electricity consumption, limiting its ability to absorb short-term shocks.

  Comparison

  Electrification is a multiyear structural trend, not a rapid wartime adjustment tool.

  Risks

  If the short-term substitution effect of electrification is overestimated, pressure on oil product supply and demand may be underestimated.

Key data

• Decline in China's crude oil imports-30.3% year over year in Q2 2026, -41.3% year over year in JuneImport growth turned sharply from 15.6% in January-February to consecutive negative growth from March through June after the conflict.
• China's 2025 crude oil import volume11.6mbpdApproximately 73% of China's total consumption and approximately 10.9% of global total production.
• Imports related to the Strait of HormuzChina's crude oil imports via the Strait of Hormuz fell 86.2% year over year in JuneBefore the war, approximately 15mbpd of crude oil passed through the strait, of which China accounted for approximately 39%.
• SPR baseline volumeApproximately 1,250mb at end-2025Based on third-party estimates, the report believes combined government and state-owned enterprise inventories totaled approximately 1.2-1.3bn barrels.
• SPR consumptionDecreased by approximately 320mb in Q2 and approximately 151mb in JuneThe report estimates that China's SPR increased by 85mb in Q1 2026 before being released substantially in Q2.
• SPR balance at end-JuneApproximately 1,015mbDown approximately 19% from approximately 1,250mb at end-2025.
• Inventory sustainabilityApproximately 6.7 months remaining at June's release rateThis estimate assumes that the June inventory consumption rate continues.
• Domestic crude oil productionUp 0.4% year over year in Q2 2026Below the 1.3% increase in Q1 and insufficient to offset the decline in imports.
• Electricity substitutionElectricity consumption up 5.5% year over year in Q2, with EV penetration rising to 62%EV charging electricity remained below 2% of nationwide electricity consumption, insufficient to absorb a sudden oil supply shock.
• Refined product tradeRefined product exports down 26.5% year over year in Q2, imports down 51.8% year over yearExport restrictions can explain only a small portion of the decline in crude oil imports, while refined products continued to face net outflow pressure.

Impact & implications

For global oil markets, China's import cuts temporarily eased the supply shock and were an important buffer preventing oil prices from spiraling further out of control. However, this buffer comes from inventory depletion and is time-limited. If Middle East supply disruptions persist, or if China actively restocks during a low-price window, global markets could face restricted Gulf supplies and a simultaneous recovery in Chinese imports, causing upside risks to oil prices to rise again.

Risks

• The Iran war or Strait of Hormuz disruptions persist, making the global crude oil supply shortfall prolonged.
• China's SPR is depleted faster than expected, forcing imports to recover earlier.
• Brent falls below USD60/bbl, triggering concentrated Chinese restocking and pushing global demand higher again.
• Domestic crude oil production cannot increase rapidly, limiting China's ability to replace imports with domestic supply.
• Volatility in refined product imports and exports could intensify pressure on domestic fuel inventories.

What to watch

• Whether China's monthly crude oil imports and high-frequency shipping data continue to recover.
• Whether Brent falls below USD90/bbl or USD60/bbl, the potential purchasing and restocking thresholds mentioned in the report.
• Traffic through the Strait of Hormuz and the pace of the recovery in Middle East supplies.
• Estimated China's SPR balance and changes in the commercial inventories of state-owned oil companies.
• Domestic refined product export restrictions, fuel price adjustments, and retail fuel sales growth.