Next Oil Rally May Depend More on China Than Middle East

The next oil rally may depend as much on China’s buying decisions as on barrels coming out of the ground. USO, the crude tracking ETF, rose 1.61% to $145.66 on Sept. 30, 2026.

China’s inventory draw is changing crude demand

China’s pullback from the seaborne market has softened competition for Gulf crude during the Iran conflict. Instead of replacing every barrel used by its refineries with imports, the country relied on oil already in storage, giving buyers in Europe, India and elsewhere in Asia more room to secure cargoes.

The International Energy Agency estimated that China drew 41 million barrels from crude inventories in June, one of the largest monthly declines on record. That stock gave refiners a buffer as Middle Eastern crude prices surged. China had built it up earlier: the US Energy Information Administration estimated that the country bought about 900,000 barrels per day for strategic and commercial storage during much of 2025, taking advantage of softer prices.

Import figures show how sharply purchases shifted. Kpler’s late May estimate put Chinese seaborne crude imports at 6.78 million barrels per day, down from 8.5 million in April and well below the 2025 average of 10.66 million. In a later July analysis, Kpler revised the May figure to about 6.7 million barrels per day, 4.4 million below the first quarter average.

Refinery activity fell less sharply. Runs were roughly 13.1 million barrels per day, down 1.8 million year over year, according to Kpler. The difference points to inventory use rather than a one for one drop in refinery demand. Kpler estimated that refiners held more than 300 million barrels in refinery storage in May, enough to cover the import gap for another 60 to 75 days without higher purchases.

Gulf cargoes found more buyers as China stepped back

China’s reduced appetite helped reshape pricing across Asia. Saudi Aramco lowered the price of Arab Light for Asian buyers by $4 per barrel for June loading, another $6 for July, then a further $11 for August. The grade ended up at a $1.50 per barrel discount to the Oman Dubai benchmark.

The change did not mean Chinese refiners stopped buying Gulf crude. During the short lived U.S. Iran ceasefire, privately owned Shenghong Petrochemical bought roughly 12 million barrels of Iraqi, Abu Dhabi and Saudi crude for July arrival, taking advantage of lower prices. The mix shifted as discounts changed, leaving Iranian barrels less attractive to some Chinese buyers.

Iranian crude imports into China were expected to fall to about 556,000 barrels per day in July, the lowest level since early 2023. Reuters estimates cited in the reporting put Iranian loadings between 30 million and 34.5 million barrels from mid June to early July. Many of those barrels were still at sea or in floating storage around Southeast Asia while sellers looked for customers.

China remained Iran’s principal customer, according to Kpler, but weaker crude demand and narrowing discounts were limiting buying interest. Moving cargoes into offshore storage can keep exports moving when immediate buyers are scarce, while postponing the final sale.

Exports recovered, but refined products lagged

The latest export figures show crude carried most of the Gulf’s recovery. The International Energy Agency estimated Gulf crude and condensate exports rose by 6.5 million barrels per day in June, reaching 16.1 million. That increase accounted for 85% of the region’s total export recovery. Refined products and liquefied petroleum gas remained below half of their pre conflict export levels.

These numbers describe exports, not a direct measure of production capacity. They show that more crude was reaching overseas markets, but the supplied data does not quantify spare production or establish how much additional output could quickly be brought online. Saudi Aramco’s price cuts indicate that producers were competing for Asian demand as more cargoes became available.

For the daily market snapshot, United States Oil Fund, LP traded at $145.66, up 1.61%. Its 52 week range was $113.86 to $163.35. The ETF provides a market level reference for crude exposure, rather than a direct quote for a crude benchmark.

What China’s inventories mean for the next oil rally

For decades, traders focused on Saudi Arabia’s production decisions as a key response to disrupted supply. China’s inventory position now adds another variable. When commercial refiners can draw on stored crude, they can delay purchases instead of rushing to replace every missing shipment. That changes the timing of demand, even when the underlying need for refinery feedstock has not fallen as sharply as imports.

The distinction matters during a geopolitical shock. A stock draw can cushion immediate pressure on importers, while fewer Chinese bids leave more cargoes available to other buyers. But the buffer is finite. The estimates of 300 million barrels in refinery storage and 60 to 75 days of import coverage were specific to May, while June’s 41 million barrel draw shows inventories were already being used.

The dollar is another possible influence on crude pricing, but the supplied market data contains no dollar reading. It therefore cannot show whether currency moves contributed to USO’s daily gain. Nor does the ETF price alone identify which supply or demand factor drove that move. The reported trade flows point instead to a market where China’s inventory choices and the changing availability of Gulf cargoes are central to price formation.

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