China has begun drawing from its commercial crude oil reserves in an effort to contain supply shocks stemming from the conflict in Iran. This comes as the world's largest oil importer continues to prioritize cutting refinery operating rates and imposing
fuel export restrictions to manage the repercussions of the crisis. Estimates from Vortexa, Kpler, and Energy Aspects suggest that the average withdrawal from inventories will amount to approximately one million barrels per day over the coming months. This represents about a
third of the crude oil volumes China is no longer receiving since the conflict led to the near-complete closure of the Strait of Hormuz. However, it remains small compared to the approximately 1.2 billion barrels the country holds within its
commercial and strategic inventories. **Limited Global Oil Market Reaction** The price reaction to what the International Energy Agency described as the largest shock in the history of the oil market has been relatively limited. China has refrained from entering global markets to
compensate for lost volumes. Brent crude, the global oil benchmark, has risen by less than a third since the conflict began, while analysts estimate that China's imports may remain weak in the coming months, helping to ease pressure on prices. China
had previously built its oil inventories to unprecedented levels last year. Energy Aspects, based on data from its satellite tracking unit Kairous, reported that the country began drawing from these reserves in May, consuming nearly 25 million barrels during the
month ending June 7. Despite the magnitude of this figure – measured against global consumption of 100 million barrels per day – the decline in demand in the refining sector had the most significant impact. **Chinese Refinery Measures** State-owned refineries have reduced
refining rates to record lows, with fuel exports restricted under wartime conditions to ensure domestic supplies, amid the accelerating shift towards electric vehicles. Emma Li, Senior China Market Analyst at Vortexa, stated that "China's transportation system has become structurally more resilient
compared to previous oil shock periods." She added that the rapid expansion in electric vehicle usage has contributed to a reduction in fuel demand by approximately one million barrels per day during the current quarter. Some observers believe that the
current demand decline may not be permanent. **U.S. Assessment** U.S. Energy Secretary Chris Wright said in Washington on Tuesday: "China had been building a strategic oil reserve, but has now stopped increasing these inventories and has begun drawing from them. It has
also reduced its refinery operating rates, leading to a decline in petroleum product output." He added that "this is a crisis response measure and does not reflect a permanent structural shift." China's strategic reserves are shrouded in a high degree of
secrecy. The existence of long-term goals and heavy reliance on underground storage prevent a clear picture of their actual size. Therefore, market participants rely on satellite imagery and independent estimates to fill this information gap. According to analytics firm Kpler, while
Beijing continued to bolster its strategic oil reserves during the conflict, refineries increasingly relied on commercial inventories instead of new imports. The volume of crude oil withdrawn from government inventories remains opaque due to a lack of transparency. **Possibility of Strategic
Reserve Use** Sumeet Ritolia, Senior Refinery Supply and Modeling Analyst at Kpler, indicated that "the use of part of the strategic petroleum reserve cannot be entirely ruled out." He added that some reserves located in hard-to-monitor underground storage facilities may have
been used to replenish more visible storage facilities that supplied oil to the market. Jianan Sun, an analyst at Energy Aspects based in London, stated that Chinese state-owned refineries are expected to resume purchasing from global markets once they begin "making
tangible withdrawals from reserves." He added that "the resumption of significant purchases is contingent on obtaining government approval, which depends on Beijing's assessment of developments in the Strait of Hormuz."
