Chinese Oil Imports May Never Recover From Iran War, Analysts Warn

Chinese oil imports may never fully bounce back from the Iran war, as the conflict sped up a permanent move away from petrol and diesel, analysts say.

Rystad Energy estimates that 200,000 to 600,000 barrels per day of transport fuel demand lost during the war will not return this year. Energy Aspects Ltd puts the permanent loss at about 300,000 barrels a day.

China's crude imports will drop by 3.3 million barrels a day this quarter from a year earlier, according to FGE NexantECA. Supply disruptions, a halt in stockpiling, refinery run cuts and a ban on fuel exports are driving the decline.

While much of the fall is due to slower stockpiling, losses in transport fuel demand are likely to last longer. Imports of crude averaged around 12.6 million barrels a day in February.

The early spike in oil prices during the war accelerated the electrification of China's transport fleet. Registrations of fully electric vehicles hit almost 42% of total sales in April, up from about 38% in March, according to the China Automotive Technology and Research Center.

Prices for new and used petrol cars have also slumped as the oil shock cooled demand.

“Consumer behavior can be a bit sticky,” said Lin Ye, vice president of oil markets at Rystad Energy. “For those who shifted to electric cars during the war, there might be little reason to switch back unless fuel prices become substantially cheaper.”

The war also revealed how much of China's oil demand was driven by stockpiling rather than actual consumption. While inventory buying could return as Middle Eastern supplies recover, demand lost to electrification is unlikely to come back. This could leave China less able to absorb surplus barrels.

The impact goes beyond China. Long seen as the oil market's buyer of last resort, the country helped cushion one of the largest supply shocks in decades by curbing imports and consumption during the war. As Middle Eastern crude returns, how much Chinese buyers re-enter the market could become a key factor for global oil prices.

Part of the crude demand recovery could come from renewed stockbuilding, higher refinery runs and possibly looser fuel export curbs. Industry consultant JLC says Beijing is likely to ease wartime restrictions on fuel exports, with about 17 million tons of quota still available this year.