Rystad: China’s crude stockpiling backstops global oil prices

Brent front month futures have consistently held above $65/bbl for the majority of the past few months, despite OPEC+ accelerating the reduction of production cuts since May. This price stability can be attributed to mainland China, which has added 156 million bbl of crude oil to its storage since March, reflecting an average monthly increase of 1.16 million b/d from March through June.

“China’s oil stockpiling goes against the grain as the global oil market has been in firm backwardation – where current prices are above future delivery prices – which does not support crude oil storage. Conversely, crude inventories outside China have declined during the same period. China’s stockpiling has provided a temporary price floor by mopping up excess supply, yet its efficacy is constrained by geopolitical factors, global supply changes and Beijing’s policy redirection. It is important to note that China’s crude inventory changes are a critical buffer for the global oil market, and not a permanent solution,” said Lin Ye, vice-president, oil markets – downstream at Rystad Energy.

Continued sanctions on Iranian oil exports have led to the evolution of the trading system, including the use of shadow fleets to transport crude oil from Iran to a few ports in China, mainly in Shandong. Sanctions imposed by the Biden administration on Russia in early January have heightened the overall risks associated with crude exports from Russia, Iran, and Venezuela.

Although China's imports from these three countries experienced a significant decline in January, they began to bounce back in February and reached a new peak in March as alternative solutions were identified.

Yet, according to Rystad Energy, in anticipation of tougher sanctions from the west and the release of multiple rounds of sanction packages, Chinese independent refiners – who are typically seen as risk takers – along with all others along the supply chain, took advantage of the opportunity to import as much as possible and stored crude in inventories. More arrivals of Iranian crude are expected in September, as there are still many barrels awaiting discharge at Chinese ports. 

China has worked to divert its import origins of natural gas liquids (NGLs) away from the US after the tariff war, even though ethane and propane purchases from the US were exempt from higher tariffs.

“Imported ethane and propane have offered routes to produce ethylene and propylene alongside imported naphtha and refinery-produced light feedstocks. A more muted reliance on imported feedstocks intensifies the alternative feedstock demand for crude oil as China’s refining sector has highlighted the technological development – ‘from crude to chemicals’ – as a core task,” said Lin Ye.

Cheaper crude oil

While discounted crude has been put into inventories since March, oil prices started to tumble in April following US President Donald Trump’s Liberation Day. According to China customs data, the average cost of crude imports experienced a significant drop in April, reaching $72.70/bbl—the lowest level observed since the onset of the COVID-19 pandemic. In the following months, the landed cost also fell below $70/bbl amid a slide in Brent prices.

Saudi Arabia responded to a loss of market share in Asia by setting lower official selling prices (OSPs) in April and May, enhancing the comparative advantage of the crude grades that Chinese refineries are designed to process.

Rising storage capacity

China has made energy security a top priority and has been working to increase its crude oil storage capacity for several years. The nation’s total crude storage capacity has grown from 1.4 billion bbl in 2015 to 2.03 billion bbl by end-2024, with an additional 124 million bbl expected to be added by the end of 2025. Publicly available information on upcoming crude storage projects indicates that China’s storage capacity will continue to rise, even as refinery operations plateau.

Meantime, the three new refining projects coming online this year in China, including the Yulong refinery’s second train, Sinopec’s Zhenhai refinery expansion, and CNOOC’s Daxie expansion, are driving the crude storage capacity along with refining capacities, adding to the need to fill crude into the inventories. 

While China's crude stockpiling slowed in July and August, in a base case scenario projected by Rystad Energy, China will resume stockpiling in fourth-quarter 2025 and continue into 2026. However, the pace of stock building in 2026 is expected to be lower on average compared with 2025. The factors contributing to China's crude inventory accumulation will persist, particularly due to ongoing geopolitical risks.