China is balancing Asia's crude demand by itself

China is significantly reducing its crude oil demand in Asia, offsetting the drop in Middle Eastern oil shipments due to the Iran war. In July, China imported 8.41 million barrels per day (bpd), an increase from June's 7.12 million bpd but still 24.3% below last year's July levels. The combined two-month average is 7.78 million bpd, which is 4.21 million bpd lower than the three-month average prior to Iran's conflict.

The conflict has effectively closed the Strait of Hormuz, cutting off a waterway through which about 20% of the world's crude oil and refined products moved. While Saudi Arabia and the UAE have boosted shipments from ports outside the strait, overall flows from the region have dropped by around five million bpd. Asia's total oil imports in July were 22.82 million bpd, up from April's 18.77 million bpd but still down about four million bpd from the average of 26.89 million bpd in the preceding three months.

China's reduced imports are partly due to price volatility, but the scale of the drop is unprecedented. China has a large crude stockpile, estimated at 1.2 billion barrels or more, allowing it to sustain lower imports for an extended period. The market is uncertain about how long China will maintain this reduced import level. However, there will likely be a mild recovery in August as cargoes that managed to exit the strait during the ceasefire are delivered.

China's imports from the Middle East are projected to increase to 2.71 million bpd in August from 2.43 million bpd in July, with total imports estimated at 5.97 million bpd. September imports are expected to provide more insight as flows from the Middle East become more constrained after the ceasefire breakdown.