“As the conflict enters its fourth month, one development stands out: prices have become remarkably calm,” JPMorgan analysts wrote in a note this week.
China’s plummeting imports have effectively shielded oil prices from increasing, analysts said. The effective closure of the Strait of Hormuz, through which about 20% of the world’s oil supply is traded, has created the largest energy disruption in global history. But China’s reliance on its strategic oil reserves, with its total stockpiles touching 1.4 billion barrels, has helped steady what could be a crisis of even greater magnitude.
China’s ability to help keep oil prices lower may be limited, however.
“How low could imports (and refinery runs) go before China must tap into its stocks more meaningfully or resume crude buying even at higher costs?” Meidan said in the report. “What does this mean for product supplies and to what extent can coal-to-chemicals offset the loss of oil-based chemicals? And what is driving these decisions?”
“The market will require higher prices to restore balance,” Haigh wrote. “Several structural pressures are pointing in the same direction: strategic reserves will need to be rebuilt, inventories are unlikely to remain comfortable without incremental supply, and new production requires stronger returns to move forward.”
