Oil bulls are starting to picture a world in which China, the engine of demand growth, comes back to the market.

And if their analysis is right, the summer is going to be painful for oil consumers everywhere who’re already facing spiraling prices — whether that’s Americans paying about $5 a gallon gasoline, or Brits spending over £100 ($125) just to fill a normal car.

Over in China, renewed restrictions in Shanghai point to a bumpy path ahead, but the world’s biggest crude importer is tentatively emerging from its latest battle with Covid-19. That’s set to add consumption to a market that has traded around $120 a barrel for its longest period in years with little help from China.

“I’ve never seen this combination of circumstances in my career over the last 50 years,” said Gary Ross a veteran oil consultant turned hedge fund manager at Black Gold Investors LLC. “The world has very little spare capacity, the economy is strong outside of China, China is now coming back and we’re in the midst of a global oil interruption.”

OPEC+ officials said this week there’s little extra supply they can add, while similar constraints within the global fleet of oil refineries has consumers facing fuel prices that are rising even faster than crude.

Several countries have announced embargoes on Russia, one of the world’s largest producers, following its invasion of Ukraine. That’s disrupting available supplies of crude and fuels. Consumption of refined products has been outpacing production, further eroding inventories.

Much of Wall Street shares the bullish take. This week, Goldman Sachs Group Inc. said it expects Brent to peak at $140 a barrel in the coming months. Morgan Stanley said its most bullish scenario of $150 could be moved higher. The record for Brent is $147.50, set in July 2008.

Bouncing Back

China National Petroleum Corp. estimates the country’s consumption could jump by 12% in the third quarter. Bank of China International said it expects a modest recovery in the third quarter, and a stronger fourth.

“We are at $120 without China, so when China comes back, oil is going to go higher,” Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd., said at a conference in Calgary. “Even with high prices, demand is continuing because people, they want to travel, they want to get out. And the second thing is that governments around the world are subsidizing prices.”

Those subsidies — or reduced taxation — are boosting demand in countries from Mexico to South Africa. That’s one reason why oil prices have held up despite US gasoline futures already trading close to $180 a barrel.

Russia is a major supplier of refined products, most notably diesel, where wholesale prices in Europe are around $170. The premium of both diesel and gasoline over crude has hit a record this year in the US and Europe, with fuel stockpiles low going into summer.

Maxed Out

Some of the market’s top policy figures are agreed that the world doesn’t currently have enough refining capacity.

Amos Hochstein, the State Department’s senior adviser for energy security, told an RBC Capital Markets conference this week that underinvestment in the energy space and a downward trend in refining capacity have been key contributors to the shortage of fuels, echoing a view held by Saudi Arabia’s energy minister. The Biden administration has even asked the US refining industry about firing up mothballed plants again.

What all this means is that, despite the Organization of Petroleum Exporting Countries and its allies pledging to hike output by more than expected earlier this month, there’s little sign for now that such moves — if they do happen — would derail the rampantly bullish market.

OPEC Secretary General Mohammad Barkindo said this week only two or three of the group’s members have room to lift output.

Even with some parts of Shanghai heading back into Covid restriction, traders believe that an eventual pickup in consumption will come in an oil market where production is, for now, largely tapped out.

For consumers, that’s especially risky ahead of summer, when refined product consumption rises thanks to travel and air conditioning demand.

The United Arab Emirates, which was also downbeat on how much supply producers can add to the market, offered the starkest warning that it could be a long summer ahead.

“We need to remember that China is not back yet,” UAE Energy Minister Suhail Al-Mazrouei said at a conference on Wednesday in Jordan. “If we continue consuming, with the pace of consumption we have, we are nowhere the peak, because China is not back yet.”