China Energy Security After June 2025
The Strait of Hormuz supplies around 50% of China’s total oil imports. China has built roughly 1.5 billion barrels of strategic petroleum reserves, enough to cover around 200 days of oil imports. China can manage disruptions by drawing down reserves and using Russian supply. It is expected to criticise US militarisation in the Middle East, while not intervening directly in the near term. Following the US-Iran tensions in June 2025, the market has now had time to assess China’s energy security, which appears more robust than initially feared. China’s strategic petroleum reserves, which we still estimate at over 1.2 billion barrels, have created a significant buffer against price shocks. This large cushion has consistently tempered upside volatility in crude oil over the last several months. The flow of Russian oil to China, a trend that accelerated after the events of last year, has proven to be a key stabilizing factor. Recent shipping data confirms that Russia remains China’s top supplier, with seaborne exports holding strong at nearly 2 million barrels per day through January and February of this year. This steady, diversified supply chain away from the Strait of Hormuz means traders should be wary of overreacting to minor regional headlines.Implications For Oil Volatility And Positioning
In the coming weeks, this underlying stability suggests that implied volatility on crude options may be inflated during any periods of tension. History shows that after the initial shock of an event, such as the one in early 2022, volatility tends to decline as the market adapts to the new reality. Therefore, derivative strategies that benefit from range-bound price action or falling volatility, like selling covered calls on existing long positions, could be prudent. Our immediate focus must be the planned meeting between Presidents Trump and Xi in April, which is a major potential catalyst. Any unexpected announcements on energy policy or sanctions could swiftly disrupt the current market calm. Traders should consider using low-cost options to hedge against a surprise outcome from that summit, as it represents the most significant known event risk on the horizon. Create your live VT Markets account and start trading now.
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