China's crude imports fell to a decade low in May, pushing Iranian oil into discount for the first time since April and dragging Russian premiums lower.
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Iranian crude slips to $1 discount as Chinese demand slumps 20%
China's crude imports fell to a decade low in May, pushing Iranian oil into discount for the first time since April and dragging Russian premiums lower.
Iranian Light crude flipped to a discount of 50 cents to $1 a barrel to ICE Brent this month, while Russian ESPO premiums eased to $3 to $4, as traders cut prices to attract Chinese buyers facing tepid demand.
"Buyers aren't accelerating procurement even if supply is tight, because prices are still too high for teapots who are suffering great losses," said Xu Muyu, senior crude oil analyst at Kpler.
China's seaborne crude imports sank to about 6.45 million barrels a day in May, the lowest in a decade, according to Kpler. That compares with 8.1 million bpd in April and 11.39 million bpd in February, the last month before the US-Iran conflict erupted. Overall April imports slumped 20 percent from a year earlier to 9.3 million bpd.
The demand weakness is squeezing revenues for Iran and Russia at a critical moment. Iran's crude exports collapsed to a six-year low of 260,000 bpd in May, less than a fifth of the 2025 average of 1.67 million bpd, Kpler data show. OilX pegged the figure even lower at 118,300 bpd. Iranian oil stored outside the US blockade zone has fallen to about 79 million barrels from roughly 130 million in mid-April.
Stockpile Drawdown Buys Time
Chinese refiners have responded to the import crunch by tapping commercial inventories at a rate of about 1 million bpd over the past three weeks, according to Vortexa and Kpler. Stockpiles peaked at roughly 1.25 billion barrels in early May after expanding by some 70 million barrels during the first four months of the year, driven by heavy purchases of discounted Russian and Iranian crude.
"China is allowing inventories to draw down gradually rather than bidding aggressively into a tight market — a choice that makes sense given how deeply negative margins have become," said Ye Lin, a senior analyst at Rystad Energy.
Refiners are losing 600 yuan to 1,300 yuan ($88.74 to $192.26) for each metric ton of crude processed, depending on grade, as Beijing caps domestic pump prices to shield consumers from global price spikes. Several Shandong-based independent refiners, known as teapots, are preparing to reduce or suspend processing after running down crude stocks built in March and April, according to an official briefed by plants during a recent visit to the refining hub.
The stockpile strategy has helped cap global oil prices, which fell 19 percent in May even as the Strait of Hormuz remained largely closed for a third month. Even if drawdown rates accelerate to 2 million bpd, the more than 200 million barrels accumulated since early 2025 would last through mid-September, according to Vortexa's lead China analyst, Emma Li.
The demand destruction reflects deeper structural shifts. Gasoline consumption is being eroded by electrification at a faster pace than anticipated, with higher pump prices pushing more drivers toward public transport, according to Chinese fuel market analysts. Commercial gasoline and diesel inventories tracked by Chinese consultancy Oilchem stood at their highest since early 2024 and July 2024, respectively.
Michal Meidan, research head at the Oxford Institute for Energy Studies, said China can sustain a 5 percent run cut versus the five-year average, which would require seaborne crude imports of 7.9 million bpd — a level in line with estimated imports for May. "While there would be some mismatch between products and chemicals, and refining margins would suffer, basic supplies would still be guaranteed before stakeholders would need to massively draw stocks or return to the market," Meidan wrote in a report last month.
This article is for informational purposes only and does not constitute investment advice.
