The international oil market is currently facing a severe oversupply situation, with prices under sustained downward pressure. In 2025, the global energy system has fallen into a state of significant overcapacity. OPEC+ has recently accelerated the reactivation of idle production capacity, agreeing in July to increase output by 548,000 barrels per day in August. This has exceeded the market expectations, and there might be another increase of the same magnitude in September in an effort to reclaim market share.
This aggressive strategy has heightened the risk of oversupply. According to a report by the International Energy Agency (IEA), global oil production in 2025 is expected to reach 104.9 million barrels per day, surpassing the projected demand of 103.8 million barrels per day, resulting in a rise in inventories throughout the year. The supply growth mainly stems from OPEC+ gradually phasing out production cuts and an additional 1.4 million barrels per day increase from non-OPEC+ countries. On the demand side, however, weak consumption in China and the U.S. has led to sluggish growth. The IEA has revised its forecast for 2025 demand growth down to 720,000 barrels per day. Although geopolitical factors such as conflicts in the Middle East have triggered short-term supply concerns, they have not reversed the fundamental trend of oversupply. Since February, global inventories have increased by an average of 1 million barrels per day, with a sharp surge of 93 million barrels in May alone. At the same time, the trade war promoted by the Trump administration has further increased uncertainty in demand prospects.
OPEC+ has revised its 2025 demand growth forecast down to 1.3 million barrels per day. Institutions such as JPMorgan predict oil prices may fall below USD 60 per barrel, reflecting the suppressive effect of U.S. tariff policies on oil demand. Under the dual pressure of expanding supply and weak demand growth, the international oil market is unlikely to see any momentum for price recovery in the short term.
In response to the continued downward trend in international oil prices, Trump has called on China to purchase “plenty (of oil) from the U.S.”.
In reality, although oil trade between the U.S. and China has been intermittent, it has never ceased. In 2023, China’s crude oil imports from the U.S. increased from 158,000 barrels per day in 2022 to 286,000 barrels per day, an 81% increase. In the first half of 2023 alone, China's crude oil imports from the U.S. more than doubled compared to the same period in 2022, showing strong growth. In terms of proportion, China’s total crude oil imports for the entire year of 2023 averaged 11.309 million barrels per day, with U.S. oil accounting for approximately 2.5% of that total.
However, by 2024, as trade tensions between China and the U.S. escalated, China’s crude oil imports from the U.S. dropped significantly, with the annual average falling to 217,000 barrels per day, a 53% decrease compared to 2023. In addition to a decline in China’s demand for transportation fuels, increased crude oil imports from countries such as Malaysia and Russia also played a partial substitutive role. According to reports, from May to July 2024, China went three consecutive months without purchasing any U.S. crude oil, marking the longest interruption since 2018. This also caused U.S. crude oil exports falling to their lowest level in over two years.
As the world’s largest net energy importer, with total energy imports exceeding 1 billion barrels of oil equivalent in 2024, China has primarily adopted a conservative, defensive strategy, which is expanding reserves at low prices to optimize energy import costs and mitigate supply chain uncertainty risks stemming from Western sanctions.
Currently, China’s price-sensitive procurement strategy has become institutionalized, with a consistent pattern of increasing imports when oil prices are low. This counter-cyclical approach not only safeguards energy security but also strengthens China’s bargaining power in the international oil market.
However, there are two sides to the coin. This strategy is fundamentally built around energy enterprises and oil product pricing, rather than being based on a broader national geopolitical strategy. Therefore, while energy security is regarded as a key component of China’s national security, in actual strategic operations, this may not always be the case.
Notably, in 2023, Russia had already become China’s largest crude oil supplier, accounting for 19% of China’s imports, approximately 2.1 million barrels per day. In contrast, while China was actively absorbing discounted crude from the international market, U.S. shale oil producers were gradually losing competitiveness due to high production costs. For these export-dependent shale producers, breaking through trade barriers and rebuilding market share have become urgent issues critical to the industry's survival.
In addition, international oil price fluctuations and slowing demand have put pressure on the performance of major U.S. oil companies. In 2024, the profits of the five major international oil giants declined by 17% year-on-year. Companies like Chevron were forced to respond to the downturn by cutting 20% of their workforce and slashing costs by USD 3 billion. The traditional energy sector, which happens to be a staunch supporter of the Republican Party, has fallen into a slump, directly undermining the political foundation of Trump’s “energy dominance” strategy.
Facing pressure from the upcoming midterm election, Trump has recently been frequently addressing China. On one hand, on June 25, he hinted at easing sanctions on Iranian oil, tacitly allowing China to continue importing Iranian crude in order to stabilize oil prices. On the other hand, he urged China to shift toward purchasing U.S. crude oil, attempting to open up markets for American oil companies.
This seemingly contradictory stance reflects multiple underlying realities. There is a fundamental conflict between the long-term strategies of oil giants transitioning to green energy and Trump’s short-term policy of reviving traditional energy. At the same time, the U.S. shale oil industry needs stable export channels to absorb its production capacity, and China, as the world’s largest crude oil importer, becomes a key target. Under election politics, there is also a delicate balance between maintaining low oil prices and protecting the interests of oil conglomerates.
Notably, Trump has already encountered a serious conflict of interest with Elon Musk over the recently passed One Big Beautiful Bill Act (OBBBA). Musk has publicly declared his intention to politically retaliate against Republican lawmakers who supported the bill, which has raised growing concerns within the Republican Party about the upcoming midterm elections. As a result, securing new benefits for fossil fuel groups who are the staunch supporters of the Republican Party to consolidate the GOP’s political base has become one of Trump’s top priorities in recent days.
ANBOUND’s founder Kung Chan believes that the political demands of Trump and the Republican Party provide China with a strategic leverage point to ease U.S.-China economic and trade tensions and to buy time for its economic structural transformation. The lever to activate this leverage is the resumption of U.S.-China oil trade, i.e., a form of “oil diplomacy” to increase China’s geopolitical bargaining power. Chan especially emphasizes that China has both the conditions and the opportunity to initiate a new round of “oil diplomacy”. He suggests shifting from a corporate and market-oriented perspective to a geopolitical strategic perspective. Given that there are no major obstacles to energy import diversification, China should make full use of this to gain greater geopolitical advantages.
For China, this has multiple advantages.
First of all, from Trump's perspective, China’s increase in oil trade is practically launching an “oil diplomacy” with America. This approach aligns with Trump’s suggestions, gives him a sense of accomplishment, and suits his personality. After all, diplomacy is not about creating obstacles for the sake of it; if it is, that is no longer diplomacy but a confrontation.
Secondly, while U.S. oil may appear expensive on the surface, it carries diplomatic significance. By engaging in such transactions, future dealings in other areas with the U.S. may become less costly for China, providing it with valuable leverage on the global stage. In contrast, Russian oil may seem cheaper at first glance, but that affordability comes with hidden costs. China often faces obstacles in its international initiatives, and Russia has proven to be of limited help, sometimes even acting against China’s interests. In this sense, Russian energy is superficially cheap but ultimately costly, whereas American energy, though seemingly expensive, may prove more advantageous in the long run. This is especially true given that U.S. light crude is of significantly higher quality compared to Russia’s heavy crude oil.
Thirdly, China could consider expanding cooperation with U.S. energy companies beyond the scope of oil imports, taking into account the broader strategic and political landscape. Many U.S. oil interests have longstanding ties to conservative political circles, particularly within the Republican Party. Engaging with these stakeholders may offer avenues for China to build more stable and multifaceted bilateral relations with the U.S. Over time, such energy-based engagement could serve as a foundation for broader diplomatic dialogue and enhance access to diverse channels of communication and cooperation.
Fourthly, for China to manage the pricing of U.S. oil, it needs to expand its oil reserve capacity, allowing imports to serve not only immediate energy needs but also long-term strategic purposes. Purchasing at higher prices may create opportunities for future resale at similarly favorable rates, helping to offset premium costs over time. Moreover, the higher quality of U.S. crude, particularly light crude, makes its higher price justifiable.
Finally, China does not need to see its purchase of U.S. oil merely as a routine commercial transaction. Ideally, it should be conducted in the framework of state-to-state trade. Getting Trump directly involved could help create favorable conditions, such as securing better pricing while offering diplomatic recognition and respect. Conversely, relying solely on negotiations by Chinese energy companies may lead to price increases or unfavorable terms, which would be more difficult to manage. Moreover, handling the matter at a purely commercial level could diminish its broader political significance.
Therefore, for China, responding to Trump’s call for increased imports of U.S. oil can be seen as a form of strategic “oil diplomacy”, which holds significant value for maintaining balance in China’s broader diplomatic posture. China’s current dependence on Russian energy may be perceived by Moscow as a sign of reliance or weakness, potentially undermining its strategic interests and enabling Russia to extract disproportionate advantages in other areas of bilateral or multilateral engagement. In this context, leveraging relations with the U.S. to counterbalance Russia emerges as a clear and effective strategy. Increasing imports of U.S. oil at this time, therefore, is a pragmatic adjustment in China's diplomatic and energy strategy.
Final conclusion analysis:
In recent years, the continued decline in international oil prices has not only provided China with a market opportunity to increase its oil reserves but also created a favorable moment to initiate “oil diplomacy” with the United States. ANBOUND believes that by positioning U.S.-China oil trade from a purely commercial activity to a strategic initiative, China stands to gain valuable geopolitical leverage.
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Siyu Bian is an Economic Research Fellow at ANBOUND, an independent think tank.
