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China's Return to Oil Market Could Trigger Fresh Price Shock, Kpler Says

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Weaker crude buying from China helped keep oil prices near $100 per barrel to $120/bbl despite an estimated 8 million barrels per day supply loss from the Middle East, Kpler said in a Monday note.

The market avoided a deeper supply shock through inventory drawdowns, rerouted Middle Eastern exports, higher West of Suez shipments and lower refinery runs across Asia.

Panic buying briefly pushed crude prices above $150/bbl during the early weeks of the US-Iran conflict before prices later stabilized.

China's seaborne crude imports are set to fall to 6.78 million b/d, the lowest level in almost 10 years, down from 8.5 million b/d in April and a 2025 average of 10.66 million b/d, according to Kpler data.

Refinery crude intake in China dropped to around 13.5 million b/d in May, down by 154,000 b/d over the month and nearly 1.92 million b/d below 2025 levels.

Imports declined faster than refinery demand, pushing China's onshore crude inventories lower to around 1,232 million barrels from a record 1,251 million barrels in early May, Kpler data showed.

State refiners, including Sinopec, plan to keep June and July refinery runs largely unchanged, even as seasonal summer fuel demand starts to increase from June onward.

Weak economic activity and elevated fuel prices reduced oil consumption in China and raised concerns over softer summer demand, according to market participants cited by Kpler.

Transportation fuel sales at state refiners missed targets again in May after weak April performance, while gasoline and diesel inventories remained near two-year highs, according to Kpler, citing Oilchem data.

Refining margins improved to around negative $2/bbl from losses near negative $60/bbl in mid-April after refiners reduced purchases of expensive crude feedstocks, according to Oilchem assessments.

Chinese refiners bought at least 30 million barrels of July-arrival crude cargoes in late April after spot premiums for West African and Latin American grades weakened.

Hormuz supply disruptions limited crude options for Chinese refiners as Beijing maintained restrictions on Venezuelan crude purchases and kept 22.5% tariffs on US crude imports.

Russian crude offered a cheaper alternative, but Chinese state refiners sharply reduced purchases after new US sanctions increased uncertainty around Eastern Siberia-Pacific Ocean, also known as ESPO, and Urals cargoes.

Independent refiners also lowered spot buying as prices for Russian and Iranian crude climbed following temporary US sanctions waivers and tighter restrictions on Iranian shipping.

Chinese independent refiners may cut refinery runs further if US restrictions on Iranian cargoes force them to compete with India for higher-priced Russian crude, potentially pushing Beijing to release reserves or boost crude buying.

Chinese refiners also retained Omani cargoes in May, signaling expectations for tighter supplies ahead, while Kpler warned that renewed Chinese buying from July could drive oil prices sharply higher again.

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