The oil market is weird.

Welcome to the most complicated yet simple story in the global economy today. After countless hours of speaking to oil executives and experts, we offer the crib-notes version of what’s happening in the oil market. A lot of things are being said. The difficult part is parsing the messaging from the analysis - a skill that is increasingly transferable to, well, all of life these days.

But, beyond the political messaging, a rather simple story emerges:

So what happened?

This chart happened:

Forgive the y-axis, but the small movements really matter. I draw your attention to the right portion of this chart, derived from IEA analysis, which includes estimates of inventories well beyond IEA member nations. That part matters.

The world’s global inventory of oil has fallen at a rapid rate - one worthy of concern and one that warrants free market oil prices to rise well beyond $115 / barrel. While the shortfall in new supply has been confirmed following the closure of the Strait of Hormuz (even including pipeline bypass options and the “dark fleet”), there remains a deep deficit of oil supply compared to demand. Inventories had to be drawn down to bridge the gap - inventories that become problematic below certain levels.

That drives prices up. Prices have been falling. What gives?

Simply put, inventories are being drawn down - but we didn’t start the crisis with the amount of oil we thought we had. Estimates from the IEA suggest we are only now reaching typical crude oil inventory levels around the world - this after a precipitous drop.

Put another way, after four months of crisis, oil inventories have dropped to the point where we thought we were in February. Where did all of this extra oil come from?

China.

China has strategic oil reserves, just like the U.S., only nobody knows just how big those reserves are (nobody outside the PRC, anyway). That’s what makes the IEA’s estimate of global inventories such a moving target. We don’t know how big the largest inventory of oil is in the world - other than to know it’s the largest inventory of oil in the world.

But the IEA and other groups can track how much oil goes into the country, and how much of that is exported or refined (used). Imports are down, but exports and refined products are about the same. It came from somewhere. That somewhere is China’s unknown strategic reserve

China drastically slowed oil imports in early 2026. Based on import levels and continued refinery production, market experts now believe China’s strategic petroleum reserve is somewhere around 1.4 billion barrels - or higher. For comparison, the U.S. entered the crisis with just over 400 million barrels - one-third the reserves of China.

And China has been willing to draw down on those reserves - a lot. Estimates are around 5 million barrels per day - almost four times the rate at which the U.S. released its own reserves.

Rough, back-of-the-napkin math: of the 15 million barrels of crude that transited the strait during normal times, roughly one-third has found bypass options, one-third is from the rest of the world drawing down inventories - including strategic oil reserves - and the final third all comes from China - a country without a dog in the fight.

As my teenage children would say: China did the world a solid - specifically Southeast Asia.

Market experts were prudent to believe China would not dip into its strategic reserves, the ultimate quantity of which remains unknown. Surely China wouldn’t release its own massive strategic reserve, indirectly helping neighboring countries deal with real oil shortages, right? And yet, whether intentional or not, that’s exactly what happened.

At the very least, the largest competitor in the crude oil game in Asia took a step back. The smaller countries in the region no longer had to compete with the 800-pound gorilla.

And strangely enough, prior to this, China had its foot on the gas (pun intended) to build those inventories sharply in 2025 - only to have 2026 return to prior levels.

And that’s not the odd part. The odd part is…

Why?

Why was China boosting oil reserves so rapidly through 2025 only to release them in 2026?

Meanwhile, other parts of the market were moving. The U.S. drew down its reserves to levels not seen since the salt caverns were initially being filled with oil in the 1980s. Other IEA member countries drew down reserves. Commercial inventories were reduced as the futures market was suppressed by the threat of rapid resolution.

This is not just a story of China’s drawdown of inventories. A lot of levers were pulled - it’s just that nobody expected China’s lever to be that big, and for the country to be so willing to pull it.

The world knew of the bypass options and of the IEA member SPR releases. The world did not know how willing China would be to release so much of its own inflated reserves - and it mattered.

And yet, the world is not out of the woods by any stretch.

So what now?

Now the market is where the public thought it was in March, but still declining. The timing of the Strait reopening could not have been better (or for those who enjoy the fashion of tin foil hats, there is a compelling theory that the deal was pressured by these inventory drops). So yes, the risk of an oil crisis and sharp price increases is still very real. The release of those secret stashes reset the clock, but it’s still running.

Inventories will need to be rebuilt at some point. That is likely to provide a floor for prices. Much of the new production brought online from Latin America and Africa was profitable at $100 a barrel, but likely marginal to unprofitable at $70 a barrel. That will moderate prices.

What about the inbound “glut” we hear from large institutions? Those warnings are from longer-term 2027 and 2028 outlooks, but the glut in two years is not relevant for today’s challenges. It’s getting from here to there that’s the real problem.

Of course, much more happened in the western third of mitigation, including political pressure, cooperative oil companies, and the “dark fleet” (which helped, but didn’t provide as much oil to the market to match the messaging).

But, if we were to refine the story of the oil markets over the past four months into two line charts and one oversimplified conclusion, it would end like this:

We started with way more oil than expected, and it was in China, and the country was willing to use it, and we’re not out of the woods.

Now, back to that “why”…

These charts are part of a larger deck being prepared for our research subscribers. As we build out additional ways to deliver contrarian analysis, consider subscribing and gaining access to the deeper story - one that includes Texas oil in Oklahoma tanks, giant salt tanks, political pressure, and angry oil executives.

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