China Set to Lift Oil Demand Buffer, Markets Brace for Volatility

China's sharp decline in oil imports has triggered significant volatility in global energy markets. Supply cushions from the Hormuz Strait crisis and large-scale stock releases have so far prevented oil prices from reaching record highs. However, concerns over China tapping reserves and potential return to normal imports could reignite market pressures.

Hormuz Strait Crisis and Supply Buffers

■Daily flow losses through the Strait of Hormuz exceeded 10 million barrels, creating a major supply shock.

■The U.S.-Iran memorandum window closed, forcing Middle Eastern producers to rush out accumulated Gulf stocks at an estimated 4.4 million bpd.

■Global crude and fuel inventories in key markets like the U.S. have reached critical lows with no remaining buffers.

China's Strategic Reserves and Market Dynamics

■China reduced crude imports by approximately 4.4 million bpd compared to the 2025 average.

■June imports fell 41.3% year-on-year to 7.12 million bpd, hitting their lowest level since October 2016.

■Pre-war strategic and commercial reserves are estimated between 1.2-1.3 billion barrels, though exact figures remain classified.

Market Risk Assessment

■Reserve drawdowns by China may push oil prices higher in the near term.

■Rising global demand amid geopolitical tensions could amplify existing supply risks.

■ECB inflation targets will face renewed pressure from energy cost fluctuations.

The shifting dynamics highlight China's pivotal role in global energy stability. Reserve policies pose a critical risk factor for energy-dependent economies like those in Europe. Defne Aydın