U.S. crude climbs above $102 as China’s import outlook shapes future oil prices

U.S. West Texas Intermediate futures closed at just over $102 a barrel on Thursday, marking the highest price since May and a roughly 50% rise from the summer low of $68.55. The surge follows heightened conflict in the Middle East, including attacks that halted Saudi Arabia’s East-West pipeline, and the collapse of a memorandum of understanding between Washington and Tehran.

Bob McNally, president of Rapidan Energy, said the market has re-added a risk premium after the failed agreement and the U.S. reinstated its naval blockade of Iran in July, though prices remain below the April wartime peak of $112.95.

Rebecca Babin, a senior energy trader at CIBC Private Wealth, told CNBC’s “Squawk Box” that the market may not fully account for a potential increase in Chinese crude demand as refiners look to expand output.

"What isn’t reflected is the fact that we may actually see a stronger demand pull for crude as refiners start to really try to ramp up in China, tightening the market further," Babin said.

China has previously limited its imports, dropping from about 5 million barrels per day to 3 million barrels per day, according to McNally, while maintaining a strategic reserve of over 1 billion barrels. He noted that the country’s reduced buying has been a key factor in containing prices, but a resurgence in demand could push prices higher.

Analysts say Chinese refiners are motivated by unusually high diesel margins caused by reduced global refining capacity after the Iran and Ukraine conflicts. Babin added that refiners are unlikely to pass up the profit opportunity, indicating they will purchase crude and increase product output.

Amrita Sen of Energy Aspects said China’s imports, which fell to a wartime low of about 6 million barrels per day in June, have risen to roughly 7 million barrels per day in July and August, though they are not expected to return to pre-war levels. Matt Smith of Kpler noted that China is likely to rely on its inventories and manage refinery runs rather than dramatically increase purchases.

Global oil inventories have fallen by about 400 million barrels over the past six months, reducing a buffer that previously limited price spikes, according to the U.S. Energy Information Administration. McNally observed that market optimism about a quick resolution is waning, and verbal interventions by officials have become less effective.

"The market’s optimism bias, its willingness to sell off on verbal intervention, jawboning about peace being around the corner, seems to be ebbing a little bit," he said.