Some 44% of the Q2 import collapse was not matched by a decline in refinery runs, and therefore came from inventories. China is rebuilding what it consumed in a market that has lost its cheap barrels — paying 20 dollars above Brent for the replacement barrel.
China is buying more oil and burning less. The two measures have been moving in opposite directions for weeks, and the gap between them is not a measurement error — it is the story.
On the consumption side, the evidence comes from the country’s largest refiner itself. Hou Qijun (Hou Qijun), chairman of Sinopec, said at a first-half results briefing in Hong Kong on 24 August 2026: “It is highly likely that demand peaked last year.” The utilisation rate at small independent refineries — Teapot Refineries — fell to 50.5%, its lowest since August 2017.
On the buying side, the trend is entirely the reverse: the differentials (Differentials) paid by Asian refiners for Atlantic crude grades are widening rapidly. Congolese Djeno (Djeno) is now priced at a 20-dollar-per-barrel premium to Brent, up from 15 dollars just two weeks ago.
The variable that explains the contradiction is inventories. When Chinese imports collapsed in Q2 to 8.1 million barrels per day — down 32% from Q1 — refinery runs did not decline to the same extent. The difference between the two figures came from commercial inventories. On our calculation derived from US Energy Information Administration (EIA) data: imports fell by 3.9 million barrels per day, refinery runs fell by 2.2 million, leaving 1.7 million — meaning about 44% of the collapse came from an inventory draw (Inventory Draw), not from a halt in consumption.
China consumed a large share of its inventories during months of supply disruption and is now rebuilding them. But it is rebuilding in a market that has lost its cheap barrels: Iranian supply has dried up under reimposed US sanctions, while Gulf sour crude (Sour Crude) has become harder to obtain. The result is that a structurally contracting buyer is paying the highest differentials in years.
One detail warrants attention: the route Saudi Arabia chose to avoid the Strait of Hormuz — the East–West Pipeline (East–West Pipeline) to Yanbu — saw its Red Sea refinery at Jazan hit three times: in July, then on 9 August, then on Monday 7 September. It recorded no exports in August.
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