China's crude imports appear set to recover from a months-long decline, as the country eases restrictions on fuel exports, increases refinery run rates, and purchases spot supplies from the Middle East, with analysts and traders expecting a return to building strategic stockpiles later this year.

The world's second-largest economy has begun playing an increasingly vital role in balancing global oil markets. Last year, China absorbed excess supplies, helping to put a floor under benchmark oil prices. But over the past few months, it has taken an opposite course.

To mitigate the fallout from the war in Iran, China resorted to drawing down its stockpiles and imposed restrictions on exports, allowing refineries to cut purchases and enabling other oil importers to cope with a severe supply crunch.

Now, despite shipping traffic through the Strait of Hormuz returning to a very slow pace, China is expected to begin adjusting its course again, by adding large volumes to its reserves starting from the fourth quarter.

Consultancy FGE NexantECA expects the pace of stockpiling to be around 800,000 barrels per day.

"Much will depend on developments in the Middle East, how long the ceasefire agreement holds, and whether oil flows through the Strait of Hormuz stabilize at early July levels or see further increases," said Muyu Xu, senior crude oil analyst at Kpler. She added: "I expect refineries to take advantage of lower oil prices and improved supply availability to replenish part of their commercial inventories."

Of course, the situation in the Arabian Gulf will be the main determinant of how aggressively China returns to the market. The provisional peace agreement reached last month appears to be wobbling under fragility, with renewed strikes and retaliatory operations in recent days, along with repeated attacks on vessels in the Strait of Hormuz.

But China is currently showing signs of a returning appetite for purchases. In recent weeks, Chinese refineries have resumed buying cheap crude from the Middle East, as producers seek to offload their accumulated inventories.

Activity of independent refineries in China

Independent refineries, including Rongsheng Petrochemical, have rushed to buy supplies from Saudi Arabia, Iraq, and the UAE, taking advantage of lower prices for those countries' crudes, according to traders.

Unipec, the trading arm of Sinopec Group, the world's largest refiner, also bought oil cargoes from the UAE.

Analysts at Energy Aspects, led by Amrita Sen, wrote in a research note dated June 29: "During this crisis, China helped balance the market by reducing demand, and now attention is turning to China's return to increasing its oil purchases."

Energy Aspects expects China's seaborne and pipeline imports to return to pre-war levels by the fourth quarter.

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The consultancy expects flows to reach about 7.6 million barrels per day in July, an increase of nearly 19% from June, before rising to more than 11 million barrels per day in November, near pre-war levels.

Beijing's imports will help support benchmark oil prices, which have already risen due to fresh tensions in the Arabian Gulf, but prices may remain too high to encourage a strong return of purchases.

Brent crude levels

Brent crude remains below its wartime peak, but was approaching $80 a barrel on Monday as the conflict continues.

Erica Downs, a senior research scholar at the Center on Global Energy Policy at Columbia University, said: "China will want and need to rebuild its oil inventories, but it has the luxury of time given the sheer size of those inventories." She added: "China can wait until it sees the price is right." China may also benefit from the US decision to end the temporary waiver on importing Iranian oil.

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That has left millions of barrels under sanctions on tankers seeking buyers, most likely from private Chinese refineries, many of which show a strong willingness to buy discounted crudes.

China's vast inventories include commercial and strategic oil reserves that help the country manage supply availability and price fluctuations.

Secrecy of strategic reserves in China

Strategic oil reserves are a tightly guarded state secret, and their long-term goals are unclear, making it difficult to assess inventory levels or the pace of purchases.

Independent data firms provide some insights into the total size of strategic and commercial inventories. After the drawdown following Beijing's approval to use them in April, Kpler estimates their size at about 1.2 billion barrels.

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The data analytics firm estimates inventories fell at an average rate of about 585,000 barrels per day since early May, while Energy Aspects says they declined by more than 1 million barrels per day in June.

This trend is expected to reverse from the fourth quarter, as energy security priorities, along with the demands of the growing petrochemical sector, will offset the decline in demand from the transportation sector (cars and trucks).

Horizon Insights expects an increase of 500,000 barrels per day, while Energy Aspects estimates the pace of stock additions will rise to about 300,000 barrels per day by November, with a possibility of exceeding that level. Goldman Sachs estimates an increase of about 520,000 barrels per day starting from 2027.