U.S. crude oil topped $102 a barrel this week, its highest close since May, as fighting in the Middle East knocked out a key Saudi Arabian pipeline. Whether China's refiners keep ramping up purchases will decide if the rally has further to run.
U.S. crude oil closed above $102 a barrel on Thursday, its highest level since May, after Saudi Arabia's East-West oil pipeline shut down following multiple attacks. The move caps a roundtrip for a contract that traded as low as $68.55 this summer, about three weeks after Washington and Tehran signed a memorandum of understanding on June 17 that later collapsed.
A risk premium rebuilds
Prices have climbed roughly 50% from that low but remain below the wartime closing high of $112.95 set on April 7. Bob McNally, president of Rapidan Energy, said the market has gradually restored a risk premium since the MOU fell apart and the U.S. reimposed its naval blockade of Iran in July.
China's crash diet starts to end
China has held prices down during the war by acting as a swing buyer, cutting crude imports by an estimated 3 million to 5 million barrels a day while leaning on a reserve of more than 1 billion barrels, McNally said. Separately, Kpler data show China's imports fell to a wartime low of around 6 million bpd in June — nearly half the 11.5 million bpd it bought in February. "The biggest factor containing crude oil prices since this thing started is China's crash diet," McNally told CNBC's "The Exchange."
That diet is loosening. Chinese imports have risen to about 7 million bpd in July and August, Kpler data show, as refiners chase diesel margins that Rebecca Babin, senior energy trader at CIBC Private Wealth, said have become too wide to pass up. Matt Smith, Kpler's director of commodity research, said this month's buying is running at similar levels to July and August and is unlikely to ramp up much beyond that, since Beijing prefers to lean on inventories over paying triple-digit prices.
Separately, Sinopec's research arm forecast that China's oil demand will fall by 600,000 barrels per day in 2026, pointing to a weaker supply and demand backdrop even as near-term imports pick up.
A shrinking buffer
Emergency stockpile releases are also fading: global inventories have fallen by 400 million barrels over more than six months of war, according to the U.S. Energy Information Administration, removing another cushion that had kept prices in check earlier this year. McNally said verbal reassurances from the Trump administration about peace are losing their pull on traders now that summer has passed without a deal.
Sources: CNBC, Crypto Briefing (snippet-based)
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