Despite the absence of a real surplus, oil prices are unlikely to surge. China has built massive strategic reserves and consistently sells from them when Brent crude moves above $70 per barrel. This acts as a ceiling on the market, creating a range-bound environment for prices in the $60s.

Protests in Iran, if they disrupt the regime, could halt cheap oil flows to China. This would force China to buy from more expensive, US-friendly markets, strengthening the US dollar's global dominance and isolating anti-Western powers without direct US intervention.

Due to sanctions, Iran's oil exports go almost exclusively to China. This monopsony gives Beijing immense leverage, allowing it to demand deep price discounts and pay in yuan. The funds are held in Chinese banks, restricting Iran to using them only for Chinese goods, crippling its ability to buy essentials elsewhere.

Contrary to conventional wisdom, a stronger renminbi would exacerbate China's deflationary pressures. This would harm corporate revenues, leading to wage cuts and negatively impacting consumer spending. Therefore, currency appreciation would make the desired economic rebalancing towards consumption more difficult.

China's policy to combat deflation focuses on cutting excess industrial capacity. However, this is deemed insufficient because the root cause is weak aggregate demand. A sustainable solution requires boosting consumption through social welfare, an approach policymakers seem hesitant to implement on a large scale.

While regions like LATAM and EMEA are still in a disinflationary phase, Asia's negative inflation surprises have ended. It's now experiencing small upside surprises, suggesting its monetary policy will diverge, with central banks remaining on hold, contrary to easing trends elsewhere.

China's strategy of building oil inventories provides a key balancing force in the market. During periods of temporary supply disruption and high prices, China can simply slow its stock building. This reduction in purchasing effectively cuts demand and helps offset the disruption, stabilizing prices more quickly.

Contrary to popular belief, the current upward inflationary pressure is a net positive for equities. It is not yet at a problematic level that weighs on growth, but it is high enough to prevent a more dangerous disinflationary growth scare scenario, which would trigger a full-blown "risk-off" cascade.

Faced with geopolitical uncertainty in key supplier nations, China employs a dual strategy for energy security. It has built a massive oil stockpile providing 120 days of cover for supply disruptions. Concurrently, it's rapidly electrifying its transport sector to reduce its long-term dependence on imported oil.