Iran's oil is stuck, China's refineries are down — Is a global price shock coming?

Time of India

24-06-2025

New Delhi: Oil prices, which had shown signs of spiking amid rising tensions between Iran and Israel, have eased back below $70 per barrel following an unexpected ceasefire announcement. According to energy consultancy Rystad Energy, this truce came earlier than markets anticipated and has shifted the global oil narrative from supply shock fears to questions around long-term price stability.
'Assuming the ceasefire holds, it reinforces our view that de-escalation was more likely than a full blockade of the Strait of Hormuz,' said Mukesh Sahdev, Global Head of Commodity Markets – Oil at Rystad Energy. The Strait of Hormuz is a strategic chokepoint through which about 20 per cent of global oil flows.
What does this mean for oil prices going forward?
With fears of escalation receding, markets are now focusing on
US-Iran negotiations
. Rystad expects Brent crude to hover near $70 per barrel, as the market digests how long the ceasefire will hold and whether it leads to a renewed nuclear agreement or easing of sanctions on Iranian crude exports.
The key question, Sahdev said, is no longer how high oil can go, but where it will settle — with possibilities ranging between the low $60s and mid-$70s depending on how events unfold.
How is Iran connected to oil prices?
Iran exports up to 2.2 million barrels of crude per day, with China being its main buyer. Almost all of Iran's oil exports go to China, often at discounted rates. But recent US sanctions on China's teapot refineries (small private players) and some Singapore-based traders have reduced flows by half — down to 1 million barrels per day.
Iranian tankers have been seen waiting near Shandong ports, and much of the crude has moved to floating storage, as Chinese demand has slowed due to maintenance outages and subdued refining activity.
If the ceasefire holds and sanctions ease, Iranian oil could find new buyers. But if Chinese demand doesn't pick up, Iran would need to diversify its buyers, as it did in 2018, when it exported to more than 10 countries.
What's happening in China's oil market?
China imported around 11 million barrels per day of crude recently, with Iranian oil accounting for 10-15 per cent of that. However, China's refinery runs in May were at 14.27 million bpd, the lowest this year, due to scheduled maintenance and reduced operations by teapot refiners.
Despite this slowdown, China has built up crude stocks in recent months, enough to cover 90–100 days of demand. As a result, analysts say China will not need to engage in panic buying, even if Iranian supply is interrupted.
That said, product inventories like gasoline and diesel are at five-year lows, suggesting China will ramp up refining activity between June and September, which could raise demand slightly.
Where will Iran's crude go if China slows buying?
With production steady at 4.2 million bpd, and about 2 million bpd available for export, Iran would need to redirect volumes if China pulls back. Historically, countries across Asia-Pacific and the EU were buyers, but current sanctions and market dynamics make this difficult.
Rystad expects India could become a key buyer of Iranian LPG, if sanctions ease or trade dynamics shift. Iran's medium sour crude matches many global refineries' requirements, and declines in Venezuela and Russia's output could open space for Iranian barrels — provided political roadblocks are cleared.
What's the role of OPEC+ in stabilising the market?
Rystad notes that OPEC+ is likely to remain cautious, gradually unwinding production cuts to maintain price stability without pushing the market into contango (a state where future prices are higher than spot prices). The IEA has raised its call on OPEC+ crude by 300,000 bpd for 2025, aligning with the group's current output plans.
Despite easing tensions, Iran and Russia's crude flows will remain key in determining supply balance in the second half of the year.
How is US shale responding to current prices?
Even though prices are near $70 per barrel, US shale production is unlikely to ramp up significantly. Rystad forecasts only a 300,000 bpd increase in US crude and condensate production this year.
The oil rig count in the US has declined, and while gas rigs have risen slightly, producers are cautious. The market structure — with backwardation in WTI crude (spot prices higher than futures) — makes it difficult for producers to hedge, reducing the incentive to expand output.
Meanwhile, US crude inventories have dropped by 36 million barrels year-on-year, and a 6.5 million-barrel draw is expected for the week ending June 20. The drawdown may help support WTI prices temporarily, but volatility remains high.
What does this mean for India?
For India, which imports over 85 per cent of its oil, any easing in crude prices provides some relief on import bills and fuel inflation. The return of Iranian barrels to the global market, either through direct trade or indirect displacement, could improve supply availability.
However, a large part of the equation depends on US policy towards Iran, OPEC+ production decisions, and China's refining behaviour in the coming months.
What lies ahead?
The next few weeks will be crucial. The ceasefire's durability, progress on a US-Iran agreement, and reshuffling of crude flows — especially from Iran and Russia — will determine whether oil remains stable or re-enters a volatile phase.
For now, the market is balanced but sensitive. Any policy misstep, supply disruption or diplomatic breakdown could shift prices quickly. As Rystad Energy puts it, 'Signals remain uncertain, and geopolitical risks persist, keeping volatility high, even as some progress towards peace is made.'