China's decreased demand for oil is a significant factor in balancing the global crude market, especially since the closure of the Strait of Hormuz. This reduction is not a mystery, but rather a result of several converging factors. For instance, in the second quarter of 2026, China lowered its net crude oil imports by 30% year-over-year, equating to 3.5 million barrels per day (bpd). This was achieved through a combination of drawing down oil from storage, which accounted for over half of the decline (1.9 million bpd), and a reduction in crude processed by refineries due to squeezed margins (1.6 million bpd).
The reduction in refinery activity was influenced by the loss of crude supplies from the Persian Gulf, rising oil and shipping prices, and Beijing's reluctance to allow early crude stock drawdowns. Refinery runs averaged 12.8 million bpd in Q2 2026, a 1.6 million bpd decrease from the previous year, with June seeing an 18% year-over-year cut to 12.5 million bpd. While domestic prices for transport fuels increased, the National Development and Reform Commission capped these rises, preventing refiners from fully passing on higher crude import costs, thus impacting their margins. Additionally, restrictions on refined product exports were implemented to ensure domestic supply.
Changes in consumer behavior also played a role. Domestic road transport fuel prices rose significantly, with wholesale gasoline prices increasing by RMB 2,275/metric ton and diesel by RMB 2,185/metric ton (approximately $40/barrel). This led to a 5% year-over-year decline in gasoline demand and a 13% fall in diesel demand in Q2 2026. State-owned energy giant Sinopec revised its forecast, now believing China's oil demand peaked in 2025, earlier than its previous 2027 prediction, primarily due to higher prices and the rapid adoption of electric vehicles. Despite a 22% increase in crude oil imports in July compared to June, they remained 24% lower than July 2025 levels.
These factors have contributed to China's carbon dioxide emissions falling by 0.3% in 2025, marking the first annual decline since 2022. While China may eventually replenish its oil inventories, there is no immediate urgency given its current stock levels, allowing it to wait for favorable prices. Sinopec, which normally holds about 20 days of crude for its refineries, reported steady inventories throughout the recent disruptions and is actively diversifying its crude imports away from the Middle East.
