Oil supply recovery leaves global trade exposed to high costs and persistent risks

These conditions are also drawing attention to China's changing position in global energy trade. Beyond its substantial import demand, China's diversified sourcing, refining infrastructure and growing involvement in overseas energy projects are influencing how companies manage supply risks and structure international partnerships.

For energy companies, freight exposure, refinery flexibility and access to alternative supply channels are becoming increasingly important considerations alongside crude prices and production costs.

| Crude Supply Recovers as Refined-Product Constraints Persist

Global crude flows have begun to recover following disruptions to Middle Eastern exports, raising the prospect of a more adequately supplied market.

The recovery, however, has been uneven across the oil supply chain.

The International Energy Agency's October Oil Market Report indicated that Middle Eastern refined-product and LPG shipments remained below half their pre-conflict levels in September. Global diesel exports were also 700,000 barrels per day lower than a year earlier.

The disparity reflects the different constraints affecting crude production, refinery operations and product distribution. Additional crude supply can ease feedstock shortages, although refinery disruptions, operational limitations and export restrictions may continue to constrain the availability of diesel and other refined products.

Inventories offer some protection against temporary shortages, although sustained supply depends on functioning production, processing and transportation networks.

As a result, improving crude balances may coexist with tight conditions in individual product markets. For refiners and trading companies, the location, specification and delivery terms of available supply can be as important as the overall volume entering the market.

| Elevated Freight Costs Complicate Oil Trade Economics

The recovery in crude exports has yet to bring shipping costs back to pre-conflict levels, leaving a substantial gap between benchmark prices and the cost of delivered supply.

The IEA had previously estimated that shipping crude from the Middle East Gulf to Asia on a large tanker cost more than $37 per barrel by mid-October, more than five times its pre-conflict level.

These costs reflect the broader disruption to maritime logistics. Longer voyages, vessel congestion and ship-to-ship transfers can reduce effective tanker capacity, while insurance premiums and security-related expenses add to the cost of transportation.

For Asian refiners with significant exposure to Middle Eastern crude, elevated freight costs can erode the price advantage of traditional supply sources. Alternative grades may become commercially attractive once transportation, insurance and delivery risks are taken into account.

Such decisions also carry operational implications. Substituting crude grades can affect refinery yields, processing costs and the value of the resulting product slate, making feedstock flexibility an important consideration in procurement strategies.

The immediate commercial consequence is a greater emphasis on delivered crude costs and refining profit margins. Producers with competitive extraction costs may face weaker demand for particular grades when freight and logistics expenses reduce their advantage at the refinery gate.

The duration of these pressures will depend partly on shipping conditions and the availability of alternative routes. Even as crude exports recover, sustained transport disruptions could continue to influence trade flows and regional price differentials.

| China's Role in Global Oil Trade Extends Beyond Import Demand

China's influence on global energy trade has traditionally been closely associated with the scale of its crude imports. Its refining capacity, procurement flexibility and international investment relationships are becoming increasingly relevant to how regional energy markets respond to supply disruptions.

Speaking at the 15th China International Petroleum Trade Conference on November 8, Liao Na, Founder of GL Consulting (premium think tank under Mysteel Group) and VP of Mysteel OilChem, outlined three developments shaping China's position in the international energy market.

1) Supply Diversification and Market Flexibility

China's diversified crude import channels, petroleum reserves and extensive refining infrastructure provide several mechanisms for managing fluctuations in external supply.

Changes in crude imports, however, require careful interpretation. Import volumes reflect procurement decisions, inventory adjustments and refinery operating requirements, alongside changes in underlying demand.

This distinction is particularly relevant during periods of geopolitical disruption, when refiners may adjust crude sourcing and processing schedules in response to price movements, freight costs and supply availability.

China's production capacity to adjust procurement and refinery operations can therefore influence regional crude demand and trade flows, although the effectiveness of these adjustments depends on prevailing market conditions, infrastructure constraints and the availability of alternative supplies.

2) Refining Competitiveness and Changing Product Demand

Structural changes in China's domestic fuel market are also reshaping refinery investment and operating strategies.

The outlook for gasoline and diesel demand is increasingly influenced by vehicle electrification, fuel efficiency improvements and the adoption of alternative fuels. Aviation fuel and petrochemical feedstocks, meanwhile, face different demand drivers.

These diverging trends are encouraging refiners to reassess their product mix and the flexibility of their processing assets.

Liao's presentation highlighted declining gasoline and diesel yields at major Chinese state-owned oil companies relative to their 2019 peaks, alongside GL Consulting's projection of a higher chemical light oil yield by 2030.

The shift towards petrochemical production presents opportunities for refiners to diversify their output, although returns will depend on product margins, capital requirements and the balance between new capacity and downstream demand.

Refiners capable of adjusting feedstock selection and product yields in response to changing market conditions may be better positioned to manage margin volatility.

3) International Investment and Industrial Partnerships

China's involvement in international energy projects is also expanding the scope of its relationships with major resource-producing countries.

Examples discussed at the conference included Chinese participation in LNG supply arrangements and upstream investments in Qatar, refining partnerships involving Saudi Aramco and Chinese companies, and logistics cooperation between ADNOC and Wanhua.

These arrangements illustrate the growing importance of investment, infrastructure and downstream integration in international energy cooperation.

For resource producers, partnerships with Chinese companies can provide access to refining capacity, industrial demand and downstream markets. Chinese companies, in turn, may benefit from more diversified supply relationships and participation in overseas energy infrastructure.

The commercial value of such arrangements will depend on project economics, contractual terms and the ability of partners to manage operational and geopolitical risks.

| Implications for Energy Companies

The combination of recovering crude supply, elevated transportation costs and changing industrial demand is creating a more complex operating environment for energy companies.

Three considerations are particularly relevant.

1) Greater Flexibility in Procurement and Asset Planning

Recent disruptions have exposed the risks of relying heavily on individual supply routes or limited feedstock options.

Companies may need to assess procurement and investment decisions against a wider range of scenarios, including renewed shipping disruptions, changes in refinery utilization and shifts in regional product demand.

Access to alternative crude grades, inventory management and flexible processing capacity can help reduce exposure to supply interruptions, although these measures involve additional costs.

2) Closer Integration of Trading, Logistics and Refining

Elevated freight costs have increased the importance of coordinating commercial and operational decisions across the supply chain.

Crude procurement, shipping arrangements, refinery configuration and product sales are closely connected. A lower-priced feedstock may offer limited financial benefit if transportation costs or processing constraints reduce its effective value.

For integrated energy companies, stronger coordination across these activities can support more informed sourcing decisions and improve the management of operating margins.

3) A Broader Assessment of China's Energy Partnerships

China's role in international energy markets is increasingly relevant to investment and industrial cooperation, alongside its importance as a crude-importing market.

International energy companies evaluating opportunities in China may need to consider refining integration, petrochemical demand, technology applications and access to regional distribution networks.

For Chinese companies pursuing overseas projects, commercial success will depend on the quality of resource access, investment discipline and the ability to operate across different regulatory and market environments.

These considerations are likely to influence the structure of future partnerships, particularly where producers and downstream companies seek closer commercial integration.

| Conclusion

The recovery in global crude supply is easing some of the immediate pressure on oil markets, although elevated freight costs and uneven refined-product availability continue to complicate international trade.

These conditions are placing greater emphasis on delivered supply costs, operational flexibility and the reliability of logistics networks. They are also reinforcing the commercial importance of diversified sourcing and closer coordination across refining, trading and transportation.

China's evolving role adds another dimension. Its refining infrastructure, changing domestic fuel demand and expanding international energy partnerships are influencing the commercial relationships that connect resource producers with Asian markets.

For energy companies, the ability to manage these interconnected factors will remain important as global supply conditions and trade routes continue to adjust.

GL Consulting provides analysis of China's energy policies, market developments and industrial transformation, helping international energy companies assess the implications for their commercial and investment strategies.

For further discussion on China's energy market and global oil trade, contact us at inquiries@mysteel.com.