China has quietly become a brake on global oil prices—by not buying as much of the stuff. With the Iran war disrupting flows through the Strait of Hormuz, many expected crude to rocket to $150 to $200 a barrel and tip the world into recession. Instead, Brent is under $100, helped in large part by a roughly three-million-barrel-a-day hole where China’s oil imports used to be, the Wall Street Journal reports. According to customs data, Beijing’s crude purchases fell to 7.8 million barrels a day in May, down from about 11 million in recent years, equivalent to the daily oil use of Italy and France combined.
Where did the demand go? Electric cars, high-speed rail, and slower petrochemical activity are shouldering some of the load, while China taps stockpiled Russian and Iranian barrels and runs refineries harder on reserves than on pricey spot crude. Fuel use has been falling in China for years, largely due to the shift toward electric vehicles, but the recent sharp drop surprised experts, Reuters reports. “It looks like consumers have made a quiet economic choice,” JP Morgan analysts wrote last month. “Faced with higher gasoline, diesel, and airfare, many seem to have shifted away from oil-based transportation.”
The shift has produced few visible disruptions at home but may not be cost-free: petrochemical feedstock shortages are emerging and producer prices rose in May. Analysts now are watching two things: how fast China burns through inventories, and when, or if, it returns to the spot market in a big way—moves that could jolt oil prices and the broader economy, the Journal reports. Sources tell Reuters that state-owned Sinopec, the world’s largest refiner, expects a 10% year-on-year drop in demand in the second and third quarters of this year, a shift that some analysts believe could be permanent.
