One reason oil prices failed to soar during the "actively kinetic" phase of the Iran war—when shipments through the Strait of Hormuz were effectively halted and the world faced a shortage of roughly 10-15 million barrels per day—was the sudden evaporation of Chinese oil demand. Whether that was caused by a sharp economic slowdown (which appears quite likely after the sudden "recap" of China's banks, described by ZeroHedge) or by an aggressive drawdown of China's strategic reserve, the reality is that both Chinese oil imports and local product refining cratered for much of 2026, signaling a genuine plunge in Chinese oil demand. The stakes of that swing are hard to overstate: as the world's largest crude importer, China buys more than 10 million barrels per day in normal times, so even modest shifts in its procurement ripple through every major pricing benchmark from Brent to Dubai.

That period now appears to be over. One telltale sign of weak Chinese demand had been the collapse in the Brent-Shanghai crude spread, which traded as negative as -$20 in late April. In recent weeks, however, Shanghai crude has jumped dramatically and is trading just shy of its highest level since the Iran war, well above $100. More importantly, it now commands a sizable premium over Brent, indicating that the era of weak Chinese demand has ended—whether because the economy is recovering or for other reasons ahead of a summit between Trump and Xi, and the midterms, remains to be determined.

As Bloomberg reports, China—the world's largest oil importer—is now aggressively bidding up crude prices across Africa, Canada, and Latin American markets, as disruptions at the Hormuz chokepoint and limited Iranian supplies intensify competition for alternative barrels. The Hormuz is one of the world's most important oil chokepoints, normally carrying roughly a fifth of globally traded petroleum, so its disruption forces buyers to source longer-haul, more expensive replacement barrels. The scramble is squeezing smaller Chinese refineries that once relied on heavily discounted Iranian crude; many of these same plants shut down a few months ago when domestic demand was insufficient. Now demand has suddenly flipped, sending Shanghai crude above $100 and threatening to push Brent—already rising above $97 earlier today for the first time in over a month—also above $100 for the first time since May.

The renewed Chinese buying marks a major shift from the period when subdued purchases helped restrain crude prices. With Iranian exports almost entirely shut off by the US blockade and fighting flaring again—including Monday's reported strike on Saudi Aramco's Jizan oil facilities—the global race for replacement supplies is becoming increasingly expensive for Chinese buyers.

Traders who spoke with Bloomberg described sharp price spikes across grades. Congo's Djeno crude was offered to Chinese buyers at premiums of as high as $20 a barrel over ICE Brent this week, up from around $15 a couple of weeks earlier, according to traders who asked not to be named because they are not authorized to speak to the media. Chinese buyers are also purchasing tanker loads of crude from Canada, Brazil, and Argentina, while stronger demand has lifted prices for Russia's ESPO crude. Asian buyers are also pushing Dubai crude futures toward $100 per barrel.

While Chinese seaborne crude imports remain below prewar levels and are currently trending toward 10 million barrels per day, the Shanghai crude spread indicates that imports are rising aggressively and that the race for alternative supplies may still intensify.

Bloomberg noted that the rebound in crude imports comes as refinery economics improve and inventories are rebuilt in China. Improved processing margins, the resumption of fuel exports, and commercial restocking are encouraging refiners to ramp up purchases, according to GL Consulting founder Liao Na.

Smaller independent refiners, known as teapots—a group concentrated in Shandong province that rose to prominence after Beijing began granting them import licenses in the mid-2010s—face the greatest pressure, as their traditional sourcing channels for Iranian and Venezuelan crude have eroded this year amid the Trump administration's push to rewire global energy markets. Their reliance on discounted barrels, often delivered via ship-to-ship transfers to evade sanctions, left them with little margin cushion when those flows dried up.

"China's robust buying lately is largely driven by refiners taking advantage of decent margins," Liao said, adding, "Active restocking by commercial players has also helped, but it's not necessarily a sign of stronger underlying demand that's supporting the recovery."

Separately, Goldman Sachs energy expert Daan Struyven expects China's ability to adjust purchases in response to prices to help moderate any spikes in crude, though he also warned that Brent could rally to as much as $120 a barrel if attacks on shipping in the Middle East increase.

"Events over the last few days do suggest that the risk of shipping disruptions broadening and intensifying is an important one," said Struyven, co-head of global commodities research, in an interview on Bloomberg TV.

Goldman's preferred way to trade another oil spike is to go long natural gas and diesel: "While we see meaningful upside to crude oil prices, we do recommend to investors to hedge geopolitical risks by going long in global natural gas and refined-oil products," Struyven said, referring to bets on gains. "The supply shocks are bigger than in the crude market."

For market watchers, the key signals ahead are whether the Shanghai-Brent premium holds, whether Chinese seaborne imports climb back above prewar levels, and whether shipping security in the Middle East deteriorates further—each of which would shape whether Brent breaches and holds the $100 mark.

By Zerohedge

Source: OilPrice.com