China's Oil Import Cuts Help Shield Global Market from Worsening Shock

China's actions have shielded the world from an even worse oil price shock, according to a report from Toronto-Dominion Economics. The country has cut back crude oil imports by around five per cent of global demand over the past year.

The massive drop in Chinese oil imports, which averaged about 45 million tonnes a month over the last five years, fell off a cliff to just under 30 million tonnes at the end of June, according to Bloomberg data. This has helped offset some supply pressures on the global market.

Oil markets expert Rory Johnston calls this colossal drop in China's imports the 'Beijing Swing' and believes it was achieved by ratcheting back crude oil refining along with a change in its policy regarding strategic reserve stockpiling. This move, whether a natural reaction or a deliberate decision, has helped save the global oil market.

However, TD economist Marc Ercolao warns that this breathing space could close soon, as many of the shock absorbers that have stabilized the market are temporary or exhaustible. For example, the United States' strategic petroleum reserves have fallen to their lowest levels since 1983, while the Organization for Economic Co-operation and Development reserves sit below pre-pandemic norms.

Additionally, there are shortages in the gasoline and diesel markets, with stocks of both sitting below their five-year averages. Ercolao notes that this matters because it's where inflation typically hits the hardest.