Escalation of Middle East Conflict Drives Significant Increase in China's Gasoline and Diesel Prices

March 3 news

According to the commodity market analysis system, the prices of gasoline and diesel from Shandong independent refineries have significantly increased. As of the 3rd, the price of China's 92# gasoline was 7846.14 CNY/ton, with a 2-day increase of 7.68%; the price of China's 0# diesel was 6361.14 CNY/ton, with a 2-day increase of 10.89%.

Core Driver: Soaring International Crude Oil Prices (the Most Direct Cause)

On Monday, March 2, local time, the international crude oil futures market experienced sharp volatility. NYMEX crude oil futures surged by more than 6%, while Brent crude oil futures rose sharply in tandem, with price increases approaching 7%. The core driver behind this surge is the rapid escalation of geopolitical tensions in the Middle East following Israeli and U.S. strikes against Iran. Several oil and gas facilities have been forced to shut down, and shipping through the critical energy corridor—the Strait of Hormuz—has been disrupted. As a result, market concerns about disruptions to global crude oil supplies have intensified dramatically.

Chinese Supply Side: Refinery Production Cuts + Resource Tightness Lead to Rapid Spot Price Increases

Due to disruptions in crude oil transportation and contract cancellations, multiple refineries including Zhejiang Petrochemical, CNOOC Shell, and Hainan Refining are considering reducing production by 20%-30%. Some refineries have suspended orders and tightened their plans. Shandong independent refineries collectively raised prices, with spot prices rapidly increasing. Additionally, with China's finished oil inventories at a low level and seasonal lows, the supply tightening further restricts spot liquidity, supporting price increases.

Market Sentiment and Demand: Stockpiling + Inherent Need Resonate, Amplifying Price Increases

Price hike expectations drive stockpiling: With a substantial price increase imminent on March 9, traders, gas stations, and end-users are rushing to replenish their inventories and lock in prices, leading to a surge in spot market demand and accelerating price increases.

Strong underlying demand: With the start of spring plowing and the recovery of logistics, demand for diesel is rebounding; gasoline demand is picking up along with rising travel activity, and downstream buyers are becoming more willing to take delivery, resulting in a temporarily tight supply-demand balance.

Market Outlook: The key factors determining the future market trend include the specific magnitude and duration of supply disruptions, as well as subsequent policy changes—such as OPEC’s production adjustments and the U.S. releasing strategic petroleum reserves. If the Middle East conflict persists for an extended period, it will not only drive oil prices higher but also intensify global inflationary pressures, thereby weighing on global economic growth. Going forward, it is crucial to closely monitor developments in the U.S.-Iran situation, navigation conditions in the Strait of Hormuz, and the actual implementation effects of OPEC’s plans to increase production. From China’s perspective, short-term refinery operating rates have declined, leading to a reduction in refined oil supplies. We expect gasoline and diesel prices to continue rising in the coming period.