A supply shock was absorbed by demand destruction rather than inventory draws. While both balance the market, demand loss is a bearish signal because consumption has fallen. Conversely, inventory draws are bullish, signaling competition for scarce supply. This distinction created a fundamentally different, and unexpected, price outcome.
During a supply crisis, commercial operators chose to preserve private oil inventories rather than sell them, even when the market structure (backwardation) offered historically large premiums for immediate sales. They relied on government strategic reserves, prioritizing long-term supply security over short-term profit, fearing a prolonged conflict.
Chinese oil demand fell much more rapidly than historical precedent suggested it would in response to high energy prices. This implies that China's economy may be becoming more energy-efficient or adaptable than in the past, challenging the reliability of existing forecasting models and suggesting lower future import requirements.