One of the reasons why the price of oil failed to soar during the “actively kinetic” phase of the Iran war, when shipments through Hormuz were effectively halted and the world faced a shortage of about 10-15mm barrels of oil per day, is that Chinese oil demand suddenly evaporated. Whether due to a sharp slowdown in the economy (which after the sudden “recap” of China’s banks appears quite likely) or due to an aggressive drain of China’s strategic reserve, the reality is that, as discussed here extensively, both Chinese oil imports…
… and local product refining…
… cratered for much of 2026, signaling that Chinese oil demand has indeed plunged.
But no more: one of the telltale signs of the period of weak Chinese demand was the collapse in the Brent-Shanghai crude spread, which traded as negative as -$20 in late April. However, in the past few weeks, we have seen a dramatic jump in Shanghai crude, which is trading just shy of the highest level hit since the Iran war, well above $100. More importantly, it now trading a sizable premium to Brent, indicating that the period of weak Chinese demand is finally over (whether because the economy is finally recovering or simply to squeeze Trump ahead of his summit with Xi, not to mention the midterms, remains tbd).
And sure enough, as Bloomberg report, China – the world’s largest oil importer – is now aggressively bidding up crude prices across Africa, Canada, and Latin American markets as disruptions in the Hormuz chokepoint and limited Iranian supplies intensify competition for alternatives. The scramble is squeezing smaller Chinese refineries that once relied on heavily discounted Iranian barrels; the same refineries simply shut down a few months ago when there was not enough domestic demand.
But now, something has finally flipped, and demand for oil is suddenly soaring, sending Shanghai crude above $100 and threatening to push Brent prices – earlier today rising above $97 for the first time in over a month – also above $100 for the first time since May.
The renewed Chinese buying marks a major shift from a period when subdued Chinese buying helped restrain crude oil prices. With Iranian exports almost entirely shut off by the US blockade and fighting flaring again, as seen Monday when Saudi Aramco’s Jizan oil facilities were reportedly hit, the race to find replacement supplies around the world is becoming an increasingly expensive task for the Chinese.
Here is what some traders who spoke with Bloomberg had to say:
The turnaround is producing spikes in the price of various grades. Congo’s Djeno crude was offered to Chinese buyers at premiums of as high as $20 a barrel over ICE Brent this week, up from around $15 a couple of weeks ago, according to traders who asked not to be named as they’re not authorized to speak to the media.
Chinese buyers are also buying tanker loads of crude from Canada, Brazil, and Argentina, while stronger demand has lifted prices for Russia’s ESPO crude. Asian buyers are also pushing Dubai crude futures toward $100 per barrel.
While Chinese seaborne crude imports are still below prewar levels and are currently trending toward 10 million barrels per day, the Shanghai crude spread indicates that imports are aggressively rising, and that the race for alternative supplies may still intensify.
Bloomberg pointed out that the rebound in crude imports comes as refinery math improves and inventories are being rebuilt in China. Improved processing margins, the resumption of fuel exports, and commercial restocking are encouraging refiners to ramp up purchases, according to GL Consulting founder Liao Na.
Smaller independent refiners, known as teapots, face the greatest pressure because their traditional sourcing channels for Iranian and Venezuelan crude have eroded this year as access to those supplies has collapsed amid the Trump administration’s push to rewire global energy markets.
Liao said, “China’s robust buying lately is largely driven by refiners taking advantage of decent margins,” adding, “Active restocking by commercial players has also helped, but it’s not necessarily a sign of stronger underlying demand that’s supporting the recovery.”
Separately, Goldman Sachs energy expert Daan Struyven expects China’s ability to adjust purchases to prices to help moderate any spikes in crude prices, although he also warned that Brent may rally to as much as $120 a barrel if attacks on shipping in the Middle East increase.
“Events over the last few days do suggest that the risk of shipping disruptions broadening and intensifying is an important one,” Daan Struyven, co-head of global commodities research, said in an interview on Bloomberg TV.
Goldman’s preferred way to trade another oil spike is buy going long natural gas and diesel as a way to capture gains: “While we see meaningful upside to crude oil prices, we do recommend to investors to hedge geopolitical risks by going long in global natural gas and refined-oil products,” Struyven said, referring to bets on gains. “The supply shocks are bigger than in the crude market.” Source: ZeroHedge
