China's crude imports stay weak as Iran conflict reshapes oil flows

China's seaborne crude oil imports edged up in August but remained sharply below levels seen before the start of the Iran conflict, underscoring how the world's largest oil importer is adapting to a disrupted market.

Arrivals reached 7.14 million barrels per day (bpd) in August, up from 6.93 million bpd in July, according to commodity analytics firm Kpler. However, that figure is still 4.27 million bpd below the 11.41 million bpd average recorded in the three months leading up to the U.S.-Israeli attack on Iran on February 28.

The drop means China is absorbing much of the adjustment to reduced Middle East crude flows, as exports through the contested Strait of Hormuz remain well below the near 20 million bpd seen before the conflict.

Asia's overall seaborne imports fell to 22.64 million bpd in August from 23.40 million bpd in July — a decline of roughly 4.29 million bpd, or 16%, from the pre-conflict average. Notably, China's reduction accounts for nearly all of Asia's total decline.

While market participants expected Beijing to curb purchases in response to higher prices, the scale of the cut has been surprising. Brent crude futures jumped 75% after the conflict began, peaking at $126.41 a barrel on April 30. Prices have since moderated to $96.28 as of September 4, but that level remains above what many Chinese refiners consider comfortable.

Several dynamics are at play. China's smaller independent refiners are losing access to Iranian crude due to the U.S. naval blockade, forcing them to either pay more for alternative cargoes or reduce processing rates. China has increased purchases from Russia — another sanctioned exporter — with seaborne imports reaching 1.68 million bpd in August, up from 1.40 million bpd in July. Pipeline imports from Russia add roughly another 1 million bpd.

At the same time, Chinese refiners are capitalizing on strong Asian profit margins for diesel and gasoline. Exports of light and middle distillates rose to 963,000 bpd in August from 774,000 bpd in July, exceeding the pre-conflict average of 713,000 bpd. The increase in product exports nearly matches the uptick in crude imports, suggesting that higher fuel shipments may require additional crude purchases.

Since the conflict began, China's reduced crude buying has helped keep global oil prices from climbing further. However, its restrained product exports during April-June contributed to elevated fuel prices across Asia. With risks of refined fuel shortages looming, a scenario where China imports more crude while exporting more fuel could benefit the broader market.