Why is oil costing less than $100, despite the war in the Middle East? The answer lies in China

Tugboats guide an oil tanker to a berth for unloading imported oil in Qingdao Port, Shandong province, eastern China. April 11, 2026. Photo: Chinatopix / AP

The war around Iran, strikes by the US and Israel, threats to close the Strait of Hormuz — all of this recently led analysts to predict a jump in oil prices to $150-200 per barrel and a new global recession. However, the most gloomy scenario did not materialize: Brent crude still costs less than $100 per barrel.

As WSJ notes, this unexpected market stability can be explained by the actions of two key players.

The US, which remains the world's largest oil producer, increased crude oil exports in April and May to more than 5 million barrels per day, compared to an average of 4 million in recent years. At the same time, China — the largest oil importer — significantly reduced its purchases.

According to official Chinese customs statistics, in May, the country imported about 7.8 million barrels of oil per day, including pipeline supplies from Russia. Previously, this figure was approximately 11 million barrels daily. Thus, about 3 million barrels per day "disappeared" from the market — roughly the same amount of oil consumed by Italy and France combined.

The Mystery of Three Million Barrels

The first and most obvious theory is the use of accumulated oil reserves. Even before the start of the Iranian crisis, China had actively purchased cheap Russian and Iranian oil for several months, replenishing its storage. Analysts estimate that the total volume of Chinese reserves ranges from 1 to 1.4 billion barrels, although Beijing does not disclose these figures. As WSJ notes, before the war, the country imported more oil than its current consumption required, specifically for stockpiling.

However, this cannot fully explain the mystery of the "missing" three million barrels. According to data from Vortexa, Chinese consumers only began significantly using stored oil in May — at approximately 500,000 barrels per day. This is significantly less than the volume of import reduction.

It's even more surprising that the massive drop in purchases has so far had little impact on the country's daily life. Tourists continue to travel, businesses operate as usual, and there are no signs of commodity shortages. This is why analysts continue to search for an answer to how China manages without such a large quantity of oil.

Seeking Substitutes

The authors suggest focusing on significant changes in China's transport sector. Electrified high-speed rail and the rapid growth in the number of electric vehicles have begun to actively displace short-distance air travel and traditional internal combustion engine cars. Meanwhile, China obtains most of its electricity from coal and renewable sources.

During national holidays in early May, aviation passenger traffic decreased by 5.7% compared to the same period last year. Simultaneously, railway transport increased by 4.6%.

Павялічыць

High-speed trains at Nanjing South Railway Station. January 25, 2025. Photo: VCG / VCG via Getty Images

The volume of electric vehicle charging on highways increased by 53% during the holiday period. According to estimates by China's Ministry of Transport, an average of 15.4 million electric vehicles traveled on the roads daily during these days. This represents about a quarter of the country's entire vehicle fleet and is 33% more than a year earlier.

As WSJ writes, China's transport system today is significantly more diverse than during previous oil crises. Additionally, at the start of the Iranian war, Beijing imposed restrictions on the export of transport fuel, which allowed for a reduction in exports by approximately 500,000 barrels per day.

Refineries Work Less

Another clue in the "three million barrels" mystery lies in industrial processing. A large proportion of the oil imported by the country is not used for gasoline production. It is refined into raw material for the chemical industry — for example, ethylene, which is necessary for the production of plastics, packaging materials, and a wide range of industrial goods.

As WSJ notes, in recent years, demand for gasoline and diesel fuel in China has been declining due to the widespread adoption of electric vehicles. Nevertheless, overall oil demand continued to grow as the country rapidly increased its petrochemical production capacity.

Павялічыць

Sinopec oil refining and petrochemical complex in Ningbo, China. Photo: Eric Ng / South China Morning Post via Getty Images

Now the situation is changing. According to Argus Media estimates, both state and private oil refineries have significantly reduced production. By May, refinery utilization fell by 10%, and the utilization of steam crackers (which break down heavy hydrocarbon feedstocks like oil into lighter chemical compounds) decreased by 7%.

However, this creates new risks. As noted in the article, China is already starting to face shortages of ethylene and other petrochemical components. This means that a prolonged reduction in oil imports could increase manufacturing costs and, consequently, negatively impact the economy.

After several years of decline, producer prices in China rose by 3.9% in May. If inflationary pressure intensifies, it could weaken the competitiveness of Chinese exports in global markets.

What's Next?

Regarding future developments, in the author's view, the situation remains ambiguous. On the one hand, the arrival of the summer season usually necessitates an increase in oil purchases. Traders will closely monitor whether China returns to the spot market in the coming weeks. For now, it's difficult to distinguish between temporary shifts in demand and deeper structural changes, such as the transition to coal-based raw materials in petrochemistry.

However, according to Vortexa experts, China can afford to continue ignoring high global prices.

The country's reserves are so vast that even if their utilization rate increases to one million barrels per day, commercial stocks alone would last for another six months. This is why the country's ability to maintain relatively low oil demand and curb global prices could persist for quite some time.

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