China can cushion the energy shock for months
XLE•China's lower crude imports are helping cap oil prices
China’s sharply lower crude imports have helped keep a lid on global oil prices, but investors are increasingly questioning how long the country can sustain imports at such historically low levels.
“A huge fall in China’s crude imports has been crucial in dampening the impact from the oil shock,” said Hamad Hussain, climate and commodities economist at Capital Economics.
The lack of official data makes it hard to gauge inventory drawdowns, but crude stocks at Chinese ports, a useful proxy for commercial inventories, have fallen sharply, he notes.
“Our best guess is that China may have the ability to draw down stocks and keep imports around current levels for many more months, possibly into 2027,” he adds.
Of course, any shift will depend on policymakers' and companies' willingness to draw down inventories further.
Longer-term risks could still push prices sharply higher
Hussain rules out that weaker end-user demand has been the main driver of the fall in China’s crude imports, recalling that, according to EIA estimates, oil consumption in China fell by just 5% year-on-year in June.
Arend Kapteyn, an economist at UBS, recently argued that China's import compression had been crucial and would remain key to stabilising oil markets, after flagging that Chinese import volumes have fallen by 42% since March.
However, a prolonged closure of the Strait of Hormuz could still push oil markets past a tipping point, sending prices to $120 per barrel or higher, Capital Economics estimates.
