China, Saudi Aramco, and Oil: What's Next?

One of the most striking developments in recent months has been the stark contrast between sentiment and expectations, as evident from the differing views of commodity market analysts and equity market analysts.

Commodity analysts warn of a potential crisis sparked by a loss of around 20% of global oil and fuel supplies. Meanwhile, equity analysts explain consecutive EPS revisions upwards. Who is right?

Currently, a deadlock seems almost impossible to explain - stock indices continue to set new records despite oil prices being significantly higher than expectations a few months ago. Saudi Aramco is the world's largest energy company, controlling crude oil production in Saudi Arabia. The company's CEO has made a comment about the market situation.

The CEO used clear language. According to Amin Nasser, the market is currently in a state of deep imbalance between supply and demand. He estimates that even if the Strait of Hormuz were reopened tomorrow, the market would still need about a year to return to normal.

The company's president mentioned a loss of around one billion barrels of oil and emphasized that the scale of this crisis has never been seen before.

However, it's difficult to assert that the current situation is not beneficial for the company. Saudi Arabia has built the 'East-West' pipeline crossing the Arabian Desert precisely for a scenario like the one currently unfolding. Meanwhile, the company's financial reports show that the oil price surge led to a nearly 25% increase in net profit in Q1 2025.

What is the reason why oil prices seem to be reacting relatively calmly to this sizeable crisis?

One factor highlighted by Morgan Stanley and Bloomberg is inventory - oil reserves are a crucial element in market mechanisms.

The key player in this context is China. China imports around 25-35% of its oil from the Persian Gulf region. However, the latest data shows that China's oil imports have decreased from 12 million barrels to slightly above 8 million - a drop of more than 3 million barrels, or over 30%. This is no coincidence: China has been stockpiling large quantities of oil reserves since the oil price drop in 2025. Is this stockpile prepared for a situation like the current one?

It's impossible to confirm - and, practically speaking, it's not that important. What is clear is that China's actions have significantly delayed the impact of the supply shortage on prices. China absorbs the supply shortage and inflationary pressure - and has a strong incentive to do so. China's industry is still in a slowdown phase, while maintaining good relationships with the West remains a top priority.

Higher domestic inflation in the current conditions can actually help reduce the real burden of debt and boost consumption and investment. Meanwhile, the West avoids recession - which would ultimately be equally detrimental to China as to Western countries. The key point to understand is that this 'freezing' market will continue as long as China de facto subsidizes global disinflation. This might become one of the lesser-discussed issues in the upcoming Trump-Xi meeting.

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