U.S. crude oil prices surpassed $100 a barrel for the first time since May, driven by escalating conflicts in the Persian Gulf and a potential surge in Chinese demand. The benchmark contract hit a high close of $102 on Thursday, marking a roughly 50% recovery from its summer low of $68.55 established three weeks after the collapse of a U.S.-Iran memorandum of understanding on June 17.
The rally intensifies following the shutdown of Saudi Arabia’s critical East-West pipeline due to multiple attacks. While the market has gradually incorporated a risk premium since the U.S. reimposed a naval blockade of Iran in July, prices remain below the wartime closing high of $112.95 recorded on April 7, according to Bob McNally, president of Rapidan Energy.
Experts suggest that the extent of the current rally may hinge on whether China increases its crude oil imports. Rebecca Babin, a senior energy trader at CIBC Private Wealth, noted that the market may not yet fully reflect a stronger demand pull as refiners in China begin to ramp up operations.
“What isn’t reflected is the fact that we may actually see a stronger demand pull for crude as refiners start to really try to ramp up in China, tightening the market further,” Babin told CNBC.
China has previously acted as a key stabilizer during the Iran conflict by significantly reducing its crude imports, cutting volumes by 3 million to 5 million barrels per day. Beijing has relied on a strategic petroleum reserve exceeding 1 billion barrels to cushion this reduction. McNally described this period as China’s “crash diet,” stating that the country is now exiting those cuts and actively bidding up crude prices.
Economic incentives are driving Chinese refiners back into the market. Profit margins for producing diesel have soared due to global refining capacity losses stemming from the wars in Iran and Ukraine. Babin explained that with such extreme margins, refiners cannot pass up the opportunity to buy crude and supply products.
Data from Energy Aspects indicates that while Chinese imports are not expected to return to prewar levels, they have risen above the lows seen in spring. Imports dropped to approximately 6 million barrels per day in June—a nearly 50% decline from the 11.5 million barrels per day recorded in February.
Is everyone ignoring the fact that China imports aren’t returning to prewar levels? The market might be overreacting to a temporary spike.
I had no idea China cut imports by half during the Iran conflict. That crash diet definitely saved their reserves, but now they’re back at it.
Oil above $100 again? I hope the gas prices don’t go ballistic while everyone is still recovering financially.