Wall Street may have solved a nagging mystery in global oil markets as doomsday scenarios have yet to arrive

China has quietly emerged as the insidious consumer of the global oil market, potentially delaying the apocalypse for a while longer.

Investors have wondered for months why crude oil prices have failed to reach worst-case scenarios, with one-fifth of the world’s oil supply trapped in the Persian Gulf.

Of course, Saudi Arabia redirected exports to bypass the Strait of Hormuz, economies in Asia introduced rationing, and the world’s largest oil-consuming countries coordinated the release of strategic reserves.

However, the efforts did not fully replace the lost oil in the Middle East; The deficit is estimated at more than 10 million barrels per day. At the same time, the US naval blockade of Iran also caused more barrels to be withdrawn from the market.

As a result, the ongoing stalemate between the United States and Iran over reaching a permanent ceasefire agreement to reopen the strait has flared up further. increasing panic from a growing chorus of voices.

“We are approaching unprecedented inventory levels,” Exxon Senior Vice President Neil Chapman warned at an industry conference on Thursday. “I’m talking about really low levels. You can debate whether it’s going to fall that low in two weeks or three weeks. Once you get to that point, you’ll see prices rising rapidly.”

Analysts made a prediction moment of truthIt could come as early as June, when global stocks reach critically low levels. But markets have less visibility into China’s massive stockpiles, estimated at around 1.4 billion barrels.

Meanwhile, China’s crude imports fell 20% in April to 9.4 million barrels per day; This represents the largest decline since the pandemic, with data for May pointing to a steeper decline to 7 million.

Chinese refineries are consuming less oil due to Beijing’s cap on fuel exports. In addition, China appears to have eased its previous oil hoarding while also freeing up some of its massive reserves.

“Stepping back, weakness in China’s crude imports could delay the tipping point for the global oil market,” Capital Economics climate and commodity economist Hamad Hussain said in a note on Friday.

It had previously predicted that Brent crude oil prices would reach record levels by the end of June, assuming market conditions and downward trends continue.

But Hussain added that recent evidence shows Chinese refiners destocked more aggressively in May compared to April, taking a larger share of the global oil shock.

“Calculations based on the image show that if China’s crude oil demand in May is repeated in June, the ‘tipping point’ in the global oil market may be postponed from June to July,” he wrote.

Such relief could not come sooner.

JPMorgan has warned that commercial oil stocks in the developed world “could approach operational stress levels” as early as June.

Strip Oil prices will soon jump as the market’s “shock absorbers” run out and the market’s ability to continue absorbing disruptions weakens, CEO Mike Wirth said Thursday.

“Over the next few weeks we will see these pressures reflected more directly in physical prices, and there is more upward pressure that I expect as we move into June and certainly into July,” he added.

Analysts at UBS said earlier this month that oil inventories were near record lows, warning that “buffers are now largely depleted.”

UBS said oil prices could become more volatile as stocks fall further, highlighting “the risk of panic buying if physical displacement intensifies and the Strait of Hormuz remains closed.”

But it was no secret to Robin Brooks, a senior fellow at the Brookings Institution, that there would be no catastrophic rise in oil prices, as he has consistently dismissed such dire predictions.

Instead, he argued that oil markets have more leeway than thought, noting that South Korea has moved away from Saudi Arabia and started importing more oil from Canada, Malaysia and elsewhere.

South Korea’s total oil imports are still falling and it has paid a heavy price for obtaining alternative sources. But the lesson here, Brooks explains, is that markets are more resilient and resourceful than they think. Bottom stack positionon Tuesday.

“In the end, this supply shock was not that traumatic,” he concluded. “That’s why oil prices didn’t have to rise to apocalyptic levels. There wasn’t a lot of demand that needed to be ‘destroyed’.”

This story first appeared on: Fortune.com