Chinese oil stocks at all-time highs ease pressure from Middle East instability

China’s oil refiners — the biggest buyers of Iranian crude — are currently undisturbed by potential disruptions to Middle Eastern oil supplies, thanks to the country’s record-high stockpiles providing a temporary cushion.

Recent analysis by Bloomberg says that, according to Kayrros, which tracks oil inventories, China’s total onshore crude stockpile has reached a record 1.18 billion barrels. This includes the private refining hub in Shandong, where holdings peaked at 355 million barrels, boosted partly by new storage tanks and refinery openings, explained Antoine Halff, co-founder and chief analyst at Kayrros.

These substantial nationwide inventories, combined with weak refining margins and seasonal drops in demand, give refiners some operational flexibility for now. Independent refiners, known as “teapots,” are currently running at about 45% capacity—a near three-month low, per Mysteel OilChem data.

“With a high stock buffer, teapots will not be in a rush to seek alternatives to Iranian crude if supplies are disrupted,” said Jianan Sun, analyst at Energy Aspects Ltd. He added that if Chinese teapots lose Iranian crude permanently, they likely won’t replace all those barrels with benchmark-linked grades; instead, some will be forced to reduce processing runs.

The global oil market has been unsettled recently after Israel launched attacks on Iran’s nuclear program, and the US is considering joining the campaign. These hostilities have stoked fears that oil infrastructure, tankers, or strategic chokepoints in the Persian Gulf could be targeted, threatening supplies from Iran and other key producers.

China’s refiners face significant risks, as Beijing has warned that the Iran-Israel conflict could spark wider Middle East instability. Foreign Minister Wang Yi has engaged diplomatically with both countries. China, the world’s largest crude importer, is also the top destination for US-sanctioned Iranian oil.

Current crude inventories exceed typical seasonal levels. OilX, part of Energy Aspects, estimates that Shandong’s terminal stocks this month are about 10% higher than the same period last year.

Spot discounts on Iranian Light crude for July delivery remain steady at $2 to $3 per barrel below the Brent benchmark, according to anonymous traders familiar with the market. Refiners have yet to seek alternative supplies such as Russia’s ESPO crude from the Far East.

Though some offers for Iranian Light crude have been made at deeper discounts, no transactions have occurred. Consultant FGE noted on June 18 that some offers for Iranian crude were reportedly withdrawn.

“Teapots have recently reduced purchases of Iranian crude due to secondary sanctions and have built local stockpiles, allowing them to endure short-term supply interruptions,” said Michal Meidan, director of the China Energy Research program at the Oxford Institute for Energy Studies.