How Long Can China Keep Living Off Its Oil Reserves?

[00:00:00][music] >> China has spent years building one of the world's largest crude oil stockpiles, giving a powerful buffer against price spikes, supply disruptions, and geopolitical shocks.

[00:00:14]But, in recent months, instead of importing crude at its usual pace, Beijing has been drawing down those reserves. As a result, China's oil imports have fallen to their lowest level in nearly a decade, prompting a key question for global energy markets.

[00:00:30]How long can China keep relying on its stockpiles? And what happens when it eventually returns to the market to refill them? Joining me now to discuss China's strategy and what it could mean for global oil prices is Alex Hodas, director of energy market strategy at StoneX. Alex, welcome back. Um, I want to start with the basics. China has spent years building up its oil reserves. I think it holds about 1.2 to 1.4 billion barrels of crude oil. How were these reserves built, and what was the thinking behind that strategy?

[00:01:06]>> So, China is one of the largest or is the largest crude oil importer on average, and they are extremely reliant on other sources of crude supply. As their demand has grown over the years, they are kind of focused more about energy security more than anything, and so they've built up these reserves in response to that.

[00:01:30]>> Okay.

[00:01:30]>> So, they have kind of acted as this buffer, and when prices are lower, they tend to come in and buy, and vice versa.

[00:01:39]So, they use this and are able to do this in a coordinated effort, but the it's primary focus is energy security.

[00:01:49]>> Okay. So, let's fast forward to today then. Over the past few months, China has been importing less crude and relying more on its stockpiles, what exactly has changed?

[00:02:01]>> So, I believe when we were first kind of entering this conflict, there was big the the talk of crude oil hitting 150, 200 dollars per barrel, and really uh what a lot of people didn't take into account, myself included, is the extent at which crude uh China could reduce its crude oil imports, and start drawing down from its inventories. So, throughout 2025, we saw the market kept uh kind of it was in a very low price environment, and the expectation was for a oversupply of crude oil for throughout the year. And really what kept the market from selling off was China allegedly had stepped into the market, and started building up these reserves at these low prices. So, all throughout 2025, and into 2026, it seemed like they were preparing for something, or they were taking advantage of just the low price environment. So, over the past several months, with uh the Middle Eastern crude barrels kind of being in tight supplies, China is their refining uh capacity is primarily structured for Middle Eastern crude oil, as well as some Russian barrels uh in addition to that. So, they are primarily exposed to this conflict, and when the prices were moving up higher, they started to reduce their run rates of refining, and then started to draw down on inventories. Although we don't really have an the exact estimates, or exact numbers of how much they drew down from their storage, and how much they have in their strategic petroleum reserve, the estimates are that they were drawing down almost 3 to 4 million barrels per day. So, in March uh China imported about 12 million barrels of crude per day. And then April it started to reduce and hit a low of in June of 7.15 million barrels per day. That was about a 40% reduction year-over-year. So, they've really been basically removing 4 to 5 million barrels per day of excess demand from the market.

[00:04:17]>> So, how long then can that strategy realistically continue using their inventories as a buffer against market disruption?

[00:04:26]>> So, heading into the conflict, uh the estimates were that they could essentially run their their from their strategic petroleum reserves, if they were to withdraw all of their supplies there, so that would mean about 12 million barrels per day.

[00:04:44]Um they would allegedly, and this is all kind of estimates.

[00:04:49]>> Yeah.

[00:04:49]>> They would be able to run down those from their strategic reserves for about uh 100 days.

[00:04:58]>> Okay.

[00:04:58]>> And that's if they had done so, you know, the whole demand amount.

[00:05:04]They are not taking that approach right now. They're kind of just reducing some of their imports.

[00:05:09]>> Right.

[00:05:09]>> And then kind of filling in on the others. So, it's almost a third of that.

[00:05:13]So, the estimates were that it could be about at their current rate could last a around 300 days of demand. So, that would put them uh the the conflict has lasted over, you know, 100 days. And then we've seen this temporary spike in or increase in flows in June. So, that's kind of bought some time as well. So, uh the estimates would be that we probably have about 200 days more that they could still do this. So, I believe there's still plenty of uh reduction in demand that they can do.

[00:05:50]Obviously, if market if the inventory start to get extremely tight, they should step back into the market. And if prices are low, they can step back into the market.

[00:06:00]>> Of course. So, what signs do you look for? Like what will tell you that China is actually back in the market buying crude in a meaningful way?

[00:06:10]>> So, looking at just barrels that are headed towards China, any of those the import numbers there.

[00:06:18]If you there are some data kind of data indicators, whether it be refinery rates coming from China.

[00:06:29]Those are released on a monthly basis.

[00:06:33]In addition to that, if you start seeing X product exports from China, that will tell you that, you know, they're kind of not holding everything at home and they're feel comfortable exporting some of those barrels as well.

[00:06:45]>> Right.

[00:06:46]>> That was kind of the thought heading into the month of July because these refining margins were so elevated that perhaps the refineries are able to start taking advantage of these elevated margin rates. But really China's just guided on policy a lot that's that's kind of the overwhelming guidance for those exporters. And they did release export fuel quotas in July.

[00:07:12]So, we're expecting to see kind of those export the refined products being exported in July.

[00:07:20]And we'll see kind of more color on that at the end of the month.

[00:07:23]>> Okay. And one last thing and I want you to walk me through this. If China does return to the market while geopolitical tensions in the Gulf remain high, what could that mean for global oil prices?

[00:07:36]>> So, I think that's the they are the biggest factor headed for because if they do have kind of less of a buffer and they step back fully into the market and start I don't want to say panic buying but that is kind of initially when this occurred that's when you saw that huge run-up in prices. So if they were to buy at the normal levels $100 crude is very very well within our sights but I don't believe that they'll do that anytime soon. I think they're going to try and drag this out as much as they possibly can.

[00:08:09]>> Yeah.

[00:08:10]>> If prices start to get higher. So right now prices are still not extremely elevated so they're around that $80 per barrel on WTI $85 $90 per barrel in Brent. So it's still not that $120 $150 level that we would see them kind of aggressively tamping down those imports. But I so I think it they will be very dependent on where the price is and I think they can last a lot longer than the market is expecting.

[00:08:43]>> Understood. Alex, thank you so much for all your insight and for joining us and thank you to our viewers for watching for more financial content. Don't forget to like and subscribe to our channel.

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