Keep oil prices stable? Used to rely on Saudi Arabia, now rely on China.

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In the crude oil market, has China taken over from Saudi Arabia as the new oil price "stabilizer"?

Although global demand growth is still cooling, OPEC+ unexpectedly decided to rapidly ramp up production this April, catching the market off guard. Analysts expect the organization may even consider further production increases at this weekend's meeting.

However, after the initial shock, the crude oil market demonstrated relative resilience. According to media reports, the fundamental reason lies in the involvement of another key player: China.

Analysis suggests that China is purchasing large amounts of crude oil to fill its strategic reserves, and this excess oil being absorbed is usually not counted in globally trackable commercial inventories, so it does not show up in international oil prices.

This means that, despite China's natural inclination toward lower oil prices as a major consumer, its current stockpiling behavior is actually supporting the market more than Saudi Arabia.

The "Saudi put option" fails, China takes over

For years, there has been talk among oil traders of a "Saudi put option." Similar to the "Fed put" in stock investing, this belief is that if oil prices fall too sharply, Saudi Arabia and its OPEC partners will support the market by cutting production.

This belief has been validated repeatedly in recent years, with the most notable case being when Saudi Arabia led a historic agreement in 2020 to cut production by 10 million barrels per day at the height of the pandemic.

However, according to media analysis, this so-called "market rescue mechanism" has basically failed this year. Saudi Arabia's decision to raise production in April completely ignored slowing global demand, possible trade threats, and a large increase in American supply.

As Saudi Arabia abandons its traditional role, China has taken on the responsibility of stabilizing the market—by continuing to absorb cheap crude oil to fill its strategic petroleum reserves (SPR).

Because oil used for strategic reserves generally does not enter the "visible inventories" (such as storage tanks in Western consumer countries), international oil price benchmarks cannot fully reflect this diverted supply. This excess oil, though objectively present, seems to have disappeared from the market in terms of pricing.

As a result, as the world's largest oil buyer, China's current actions are objectively supporting oil prices more than Saudi Arabia, a producer country.

Currently, Wall Street widely predicts that the global crude oil market will be faced with a serious supply glut from the fourth quarter of this year through 2026. However, traders believe that as long as this excess supply continues to flow into China's strategic reserves, oversupply may not matter for prices, as the key market risk has shifted.

Analysis points out that the core issue in the future is that, if China's willingness to stockpile crude weakens, the global oil market might face a "painful reckoning." At that point, the temporarily hidden oversupply problem will be fully exposed, putting tremendous downward pressure on oil prices.

Risk warning and disclaimerThe market is risky, and investment should be cautious. This article does not constitute individual investment advice, nor does it take into account the individual investment objectives, financial circumstances, or needs of any particular user. Users should consider whether any opinions, views, or conclusions in this article fit their specific circumstances. Investing based on this article is at your own risk. ```