Lin Ye, Vice President, Oil Markets – Downstream, Rystad Energy, said that China’s crude inventory fluctuations are a vital safety net for the world oil market rather than a long-term fix.
Despite the fact that storage makes little financial sense under the existing price structure, China’s crude oil reserves have become a vital buffer for the world market. While oil stocks outside of China have been declining, Beijing’s purchases have helped absorb surplus supply and create a temporary price floor, according to Rystad Energy.
According to Lin Ye, Vice President, Oil Markets – Downstream, Rystad Energy, “China’s oil stockpiling goes against the grain since the global oil market has been in solid backwardation — when current prices are above future delivery prices — which does not favor crude oil storage.” “Chinese crude inventory fluctuations are a vital safety net for the world oil market, but they are not a long-term fix.”
The element of geopolitics
China’s refineries have been exploiting geopolitical upheavals, especially independent refineries in Shandong province. As traders discovered workarounds, such as “dark fleet” vessels, imports swiftly rebounded by February and soared to record highs in March after sanctions on Iranian, Russian, and Venezuelan petroleum curtailed supplies earlier this year.
Anticipating more severe sanctions from the West, independent refiners hurried to acquire supplies and rapidly increased their stocks. Tankers are waiting in Chinese ports for more Iranian cargo in September.
Another factor was the trade war between the US and China. China has attempted to lessen its dependency on US feedstocks by using crude oil as part of its “crude-to-chemicals” refining plan, notwithstanding exceptions for ethane and propane.
The economics of inexpensive crude
China’s stockpiling occurred at the same time when oil prices fell precipitously. The average price of importing petroleum fell to $72.7 per barrel in April, the lowest since the Covid-19 epidemic, according to customs statistics. Later months saw a further decline in landing costs, falling below $70 per barrel.
Following a decline in its market share in Asia, Saudi Arabia also lowered its official selling prices (OSPs) in April and May, which further increased the appeal of its crude grades to Chinese refiners capable of processing them.
The basics of refining and storing
April’s seasonal maintenance outages Specifically at Sinopec facilities, May cut state-owned refining operations by around 1.2 million barrels per day. The need for crude inputs will rise when these facilities return to service.
For years, China has been gradually increasing its storage capacity. By the end of 2024, capacity had increased from 1.4 billion barrels in 2015 to 2.03 billion barrels. By the end of 2025, an additional 124 million barrels are anticipated, in addition to additional refining capacity at the Yulong refinery, CNOOC’s Daxie expansion, and Sinopec’s Zhenhai facility.
Beijing’s long-term energy security objectives are reflected in this buildup, since stockpiling is seen as insurance against supply disruptions worldwide.
What is the duration of stockpiling?
China’s stockpiling is anticipated to resume in September and extend into the fourth quarter of 2025 after a lull in July and August. Rystad predicts further growth in 2026, but at a slower pace than this year.
Lin Ye said, “We think the factors influencing China’s oil stockpile will not change, particularly as long as geopolitical threats persist.”
The fourth quarter of 2025 is expected to have a 2.14 million barrel per day surplus as non-OPEC supply increases and OPEC+ unwinds output curbs. Prices may decline as a result of this excess supply, giving China new motivation to keep increasing its reserves.