The most powerful force in the oil market is now a single country that doesn't produce a drop.
OPEC IS DEAD
And here's why you should change how you think about energy for the next decade:
China controls the oil price not by pumping it, but by REFUSING TO BUY IT.
For two years, while the West wasn't paying attention, China built a war chest of crude.
They bought cheap, sanctioned barrels at $60 while everyone else looked the other way. They stacked a reserve now estimated between 1.2 and 1.5 BILLION barrels.
Then the world got its biggest supply shock in modern history and instead of panic-buying like everyone else, China did the opposite.
They stopped importing and started eating their own stockpile.
Chinese crude imports collapsed from 11.6 million barrels a day to under 8 million - the lowest level since 2017. That single decision accounted for roughly 74% of the entire drop in global oil demand, according to JPMorgan.
Sit with that number for a second.
The world lost 14% of its crude supply. In 1973, OPEC cut off just 7% and the price exploded 134%.
This shock was twice as large.
But oil went the other way. WTI sits at $74 today.
Because the world's largest buyer simply walked out of the store and lived off its pantry.
THAT is the new OPEC.
For 50 years we obsessed over the Saudis. We watched OPEC meetings like Fed meetings, parsing every production quota. Those days are ending and the most powerful swing force in oil is no longer a cartel that controls supply.
It's one country that controls DEMAND.
And demand is the harder lever. You can cheat on a production quota but you can't force a billion-barrel buyer to show up if it doesn't want to.
Here's what this means for your money right now:
China has capped the upside. As long as they're sitting on that hoard, they sell into every rally toward $100. No spike gets to run. The right tail is gone - stop dreaming about $150 oil.
But they've also built the floor. Those reserves are draining fast.
JPMorgan expects China back as a major buyer by August to start refilling. The US has to refill its own SPR, now at its lowest since 1990. Everyone has to restock at once.
You don't get $100 oil - China sells it to you. You don't get $50 oil - China and everyone else has to come back and buy it.
You get a range. And right now we're sitting at the bottom of it.
Crude is parked on its 200-day moving average. Retail traders are positioned near record short in Brent. Sentiment is in the gutter, RSI under 30.
When the entire crowd leans the same way off the same wrong assumption, I want the other side of that trade.
If I had to bet the next $10 or $15 move in crude, I'm betting higher.
Because the most important player in the oil market already told you exactly what it's going to do.
The Saudis didn't break OPEC. China did - by building a reserve nobody could see and refusing to spend it when it mattered most.
Thanks appreciate the link. Think the point that there is a higher floor is as important as the ceiling since with long end $70barrel + a lot of projects particularly offshore work.
"China has capped the upside. As long as they're sitting on that hoard, they sell into every rally toward $100. No spike gets to run. The right tail is gone - stop dreaming about $150 oil.
But they've also built the floor. Those reserves are draining fast."
Re: Zhipu AI: Interesting. I'll have to do more research. But man its stock price... insane.
And re: China demand, I see where you're coming from. They have incredible leverage, thanks to their flexibility (result of having a massive SPR) and their willingness to implement policies despite short-term pain (can't say that for the US gov...)
That said... don't think they cut down on imports just because they were being strategic. Another reason, I think, is ME crude replacements were hard to find.
On May 25th, Muyu Xu, a Kpler analyst, pointed out the challenging reality that state-owned and independent refiners face:
"With Middle Eastern supplies still constrained by the Hormuz closure, China’s state-owned refiners are facing even more limited options than their global peers. Beijing has yet to relax restrictions on Venezuelan crude purchases, while the 22.5% tariffs on US crude imports remain in place.
Russian crude has emerged as a cheaper alternative. However, the latest US sanctions only cover cargoes loaded before April 17, effectively excluding ESPO cargoes arriving after mid-May and Urals cargoes after early June. As a result, state refiners have significantly scaled back new purchases, if not suspended them altogether, leading to an overhang of Russian crude in the Chinese market for both June and even some May-arrival cargoes."
A Chinese contact in my circle said the same in May: "We need oil, we just don't know where to get it".
With regard to the China question, I thought this take was interesting...
https://x.com/gnoble79/status/2069544739829944329
The most powerful force in the oil market is now a single country that doesn't produce a drop.
OPEC IS DEAD
And here's why you should change how you think about energy for the next decade:
China controls the oil price not by pumping it, but by REFUSING TO BUY IT.
For two years, while the West wasn't paying attention, China built a war chest of crude.
They bought cheap, sanctioned barrels at $60 while everyone else looked the other way. They stacked a reserve now estimated between 1.2 and 1.5 BILLION barrels.
Then the world got its biggest supply shock in modern history and instead of panic-buying like everyone else, China did the opposite.
They stopped importing and started eating their own stockpile.
Chinese crude imports collapsed from 11.6 million barrels a day to under 8 million - the lowest level since 2017. That single decision accounted for roughly 74% of the entire drop in global oil demand, according to JPMorgan.
Sit with that number for a second.
The world lost 14% of its crude supply. In 1973, OPEC cut off just 7% and the price exploded 134%.
This shock was twice as large.
But oil went the other way. WTI sits at $74 today.
Because the world's largest buyer simply walked out of the store and lived off its pantry.
THAT is the new OPEC.
For 50 years we obsessed over the Saudis. We watched OPEC meetings like Fed meetings, parsing every production quota. Those days are ending and the most powerful swing force in oil is no longer a cartel that controls supply.
It's one country that controls DEMAND.
And demand is the harder lever. You can cheat on a production quota but you can't force a billion-barrel buyer to show up if it doesn't want to.
Here's what this means for your money right now:
China has capped the upside. As long as they're sitting on that hoard, they sell into every rally toward $100. No spike gets to run. The right tail is gone - stop dreaming about $150 oil.
But they've also built the floor. Those reserves are draining fast.
JPMorgan expects China back as a major buyer by August to start refilling. The US has to refill its own SPR, now at its lowest since 1990. Everyone has to restock at once.
You don't get $100 oil - China sells it to you. You don't get $50 oil - China and everyone else has to come back and buy it.
You get a range. And right now we're sitting at the bottom of it.
Crude is parked on its 200-day moving average. Retail traders are positioned near record short in Brent. Sentiment is in the gutter, RSI under 30.
When the entire crowd leans the same way off the same wrong assumption, I want the other side of that trade.
If I had to bet the next $10 or $15 move in crude, I'm betting higher.
Because the most important player in the oil market already told you exactly what it's going to do.
The Saudis didn't break OPEC. China did - by building a reserve nobody could see and refusing to spend it when it mattered most.
Thanks appreciate the link. Think the point that there is a higher floor is as important as the ceiling since with long end $70barrel + a lot of projects particularly offshore work.
"China has capped the upside. As long as they're sitting on that hoard, they sell into every rally toward $100. No spike gets to run. The right tail is gone - stop dreaming about $150 oil.
But they've also built the floor. Those reserves are draining fast."
Love Fisher's quote!
Re: Zhipu AI: Interesting. I'll have to do more research. But man its stock price... insane.
And re: China demand, I see where you're coming from. They have incredible leverage, thanks to their flexibility (result of having a massive SPR) and their willingness to implement policies despite short-term pain (can't say that for the US gov...)
That said... don't think they cut down on imports just because they were being strategic. Another reason, I think, is ME crude replacements were hard to find.
On May 25th, Muyu Xu, a Kpler analyst, pointed out the challenging reality that state-owned and independent refiners face:
"With Middle Eastern supplies still constrained by the Hormuz closure, China’s state-owned refiners are facing even more limited options than their global peers. Beijing has yet to relax restrictions on Venezuelan crude purchases, while the 22.5% tariffs on US crude imports remain in place.
Russian crude has emerged as a cheaper alternative. However, the latest US sanctions only cover cargoes loaded before April 17, effectively excluding ESPO cargoes arriving after mid-May and Urals cargoes after early June. As a result, state refiners have significantly scaled back new purchases, if not suspended them altogether, leading to an overhang of Russian crude in the Chinese market for both June and even some May-arrival cargoes."
A Chinese contact in my circle said the same in May: "We need oil, we just don't know where to get it".