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Institutions: High oil prices are good for the industrial chain

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Market Insight wrote a column · Mar 2, 2022 22:00
The agency believes that high oil prices are good for the performance release of relevant industrial chains: it is recommended to pay attention to oil and gas producers and oil service suppliers who directly benefit from high oil prices; in addition, the cost advantages of coal chemical industry and light hydrocarbon cracking under high oil prices are highlighted, and refining and chemical leaders with high safety margins and considerable growth are recommended for a long time.
Firstly， the situation in Russia and Ukraine continues to escalate, with oil prices exceeding 110 US dollars per barrel.
On March 1, the European Union imposed sanctions on 26 Russian government officials and entrepreneurs, and the European Parliament passed a resolution demanding restrictions on the import of oil and natural gas from Russia and a new ban on investment.
Germany, Britain and other European countries have indicated that they will get rid of their dependence on Russian crude oil and natural gas as soon as possible. Canada announced that it would ban the import of Russian crude oil, while Europe and the United States all announced that they would take more sanctions against Russia.
On the other hand, the 30 members of the International Energy Agency (IEA) announced the release of 60 million barrels of crude oil strategic reserves to stabilize energy markets, but only equivalent to about 60 per cent of global daily demand. The combination of financial sanctions and concerns led to a sharp drop in Russian crude oil sales, with Urals discounting Brent crude at an all-time high of $10.46 a barrel on Feb. 28 (usually just $1 to $3 a barrel).
Market concerns about the serious global energy shortage caused by the absence of Russian crude oil and natural gas intensified. On March 1, Brent and WTI rose 9.71%, 9.80% to 107.65 US dollars per barrel and 102.82 US dollars per barrel, respectively, reaching the highest level since July 2014, and continued to rise.
Secondly, the short-term trend of oil prices still needs to continue to follow the evolution of the situation in Russia and Ukraine, and it does not rule out that oil prices will continue to rise.
According to the BP World Energy Statistical Yearbook, Russia exported an average of 5 million barrels per day of crude oil per day in 2020, of which 31 per cent and 48 per cent were exported to China and OECD countries, and 238.1 billion natural gas were exported per year, of which 5 per cent and 72 per cent were exported to China and OECD countries. Russia exports about 3.45 million b / d of crude oil to other countries except China, exceeding the current global capacity (about 2.08 million b / d) expected by the EIA within three months.
On March 2, Bloomberg reported that the European Union is discussing banning seven Russian banks from accessing the SWIFT system, but the proposed list does not include Sberbank, Russia's largest bank, nor does it include Gazprombankf, the main service provider for Russian energy companies, which still retains certain settlement channels for Russian crude oil and natural gas exports.
If the situation in Russia and Ukraine further escalates, European and American sanctions against Russia will continue to increase, and Russia's crude oil and natural gas exports will be seriously restricted, which will lead to a substantial shortage of crude oil and natural gas in the world and substantially push up oil and gas prices.
In addition, since the recovery of crude oil supply usually lags behind the recovery of demand, there is still the possibility of rapid recovery of demand and relatively tight supply of crude oil from January to February, even if the conflict between Russia and Ukraine is not taken into account. Short-term oil prices also have strong fundamental support.
Maintaining the oil price center in 2022 is significantly higher than the forecast of sustainable high oil prices in 2021 and in the next 2-3 years.
Looking forward to 2022, if there is no higher-than-expected capacity release on the supply side (such as the return of Iranian crude oil to the market and a substantial increase in shale oil production in the United States), the rapid recovery of demand and low inventories will continue, and we maintain the forecast that the oil price center in 2022 will be significantly higher than that in 2021 (the average price of Brent oil in 2021 is about $70.94 / barrel).
Do not rule out the possibility that there is a higher-than-expected range of 120 US dollars per barrel or higher in the short term.
In the medium to long term (3-5 years dimension), we believe that the trend of demand recovery and sustained growth, supply-side relative restraint of capital spending to curb the potential to increase production will exist for a long time. Optimistic about the fundamental pattern of tight supply is expected to support Brent oil prices to remain above 65 or even 70 US dollars per barrel for a long time.
Fourth, the rise in oil prices is good for oil companies, oil services, coal chemicals and light hydrocarbon cracking plates, and pay attention to the layout opportunities brought about by the overfall of refining and chemical enterprises.
High oil prices are good for the performance of oil companies. Take Petrochina as an example. 2021H1 produces 374.9 million barrels of crude oil. Calculated at Petrochina Company Limited's overall tax rate of 35%, achieving a rise in oil prices of 1 US dollar per barrel will bring an annualized increase of about 3.1 billion yuan.
In the coal chemical sector, coal chemical products such as olefins, polyols, adipic acid, caprolactam and nylon 6, as well as most of the product prices in the light hydrocarbon cracking industry chain are positively related to oil prices. The rise in oil prices is conducive to the profit improvement of coal chemical and light hydrocarbon cracking enterprises.
Excessively high oil prices may lead to poor cost transmission and pressure on performance of refining and chemical companies. Based on 30-day inventory, Brent has recently risen from $90 / barrel to $110 / barrel, with 20 million-ton refineries corresponding to inventory gains of about 16-1.8 billion yuan, but most of them hedge against the pressure on operating results caused by this round of rising oil prices. Under the current product prices, the annual performance of private refining and chemical enterprises in 2022 are all near 10xPE, with a significant margin of safety.
$Petroleum ETF(BK1253.HK)$ $SPDR S&P Oil & Gas Exploration & Production ETF(XOP.US)$ $United States Oil Fund LP(USO.US)$ $CSI Commodity Equity Index(000979.SH)$
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