CorrectionOur 15 July correction to the 14 July editions itself carried an incorrect figure — August TTF settled at €53.06/MWh on 14 July, not €44.18. The cause was a stale exchange-data feed, now fixed. Read the full account →
China's Demand Cut and US Export Surge Keep Brent at $85 as Hormuz Stalemate Drags On
A 9.3 million barrel-a-day US-China supply offset has held crude below $100, but China's reserves are being drawn down and refineries are cutting output.
ICE Brent crude front-month traded at $84.59 a barrel on Thursday (2026-07-16), well below the triple-digit levels that briefly appeared when the United States launched what it called "major combat operations" against Iran on Saturday (2026-05-16). The price arithmetic that kept crude below $100 for two months is starting to look more fragile than the market's relative calm suggests.1,3
Morgan Stanley estimated that two forces together absorbed 9.3 million barrels a day of potential tightness: the United States' 3.8 million barrel-a-day increase in crude exports, and China's 5.5 million barrel-a-day cut in imports. Without that offset, the loss of Hormuz throughput would have driven prices through $100 and likely much higher, the bank's analysts wrote.3
China's side of that equation is particularly consequential. Chinese authorities moved quickly after hostilities began to order major domestic refiners to suspend exports of diesel and petrol, conserving supply for a prolonged disruption. The country held an estimated 1.3 billion barrels of crude in strategic and commercial reserves — enough to cover roughly a year of lost Gulf imports, according to The Economist.2
Drawing those reserves down has a cost. Many Chinese refineries were already reducing output by 10% or more even as the drawdown began, Kpler data showed, as the logistical mismatch between stored barrels and refinery feedstock grades took hold. China is managing, but not comfortably.2
The broader Asian exposure to the Strait of Hormuz is difficult to reroute around. The Gulf supplies between 40% and 80% of the seaborne crude imports of China, India, Japan and South Korea, and in 2025 Asia absorbed 87% of the crude and 86% of the LNG that transited the strait, according to The Economist.2
The Hormuz situation is formally unresolved. Iran agreed to reopen the strait for safe passage, Argus Media reported, but maritime traffic has remained near a standstill due to insurance costs and new Iranian demands. War-risk premiums for US, UK and Israeli-affiliated vessels reached as high as 5%, making a voyage for a $150 million tanker cost up to $7.5 million in insurance alone, per Argus data. Iran was also demanding transit fees of up to $2 million per ship, payable in cryptocurrency or Chinese yuan.4
ICE Brent crude briefly plunged 17% on Tuesday (2026-05-19) to fall below $80 before recovering to near $90, Al Jazeera reported, as mixed signals from Washington about the trajectory of the conflict whipsawed traders.1 The volatility showed how much of crude's price level rested on expectations about when Hormuz would reopen.
By mid-June those expectations were being tested. Hostilities increased notably around June 11 (2026-06-11), effectively ending a US-Iranian truce that had provided a brief window for negotiations, according to War on the Rocks.5 Talks made no visible progress.
Despite the closure removing close to one billion barrels of seaborne Gulf supply from the market since mid-May, futures still failed to revisit the highs of 2022, as the market had entered the crisis with meaningful inventory buffers and sustained confidence that Hormuz would reopen, Morgan Stanley analysts noted.3 That confidence has not been eliminated. It has been repeatedly deferred.
Gas markets tell a different story. By late May (2026-05-19), European natural gas prices were 92% higher than before the war, The Economist reported, as Gulf LNG exports dried up. ICE Endex TTF front-month traded at €54.37 per MWh on Thursday (2026-07-16), with the war's effect on LNG flows hitting Europe disproportionately given Asia's geographic and contractual priority on Gulf cargoes.2
The buffer that held crude at $84 rather than $120 was the product of specific, temporary decisions — a US export surge that cannot expand indefinitely and a Chinese reserve drawdown that cannot run forever. Insurance costs, not cease-fire terms, now determine when Hormuz actually reopens to normal commercial traffic; until the war-risk premium collapses, the legal reopening and the commercial reopening remain two different events.3,4