Petrochemical industry: focus on the start of deep sea exploration

[Summary of Research Report on Petrochemical Industry]

In February, the overall situation of the petrochemical and oil service industry was reviewed. Affected by the favorable economic data of the United States and the impact of the Middle East storm, the international crude oil prices rose ferociously. In February, the average prices of Brent and WTI were 120 and 102 US dollars/barrel, respectively. 7.9% and 2.1%; Domestic refined oil consumption was sluggish, and oil refining continued to suffer losses. The spreads of some petrochemical products showed signs of improvement, but they were still at historic low levels; the global oil service industry recovered slowly.

We increase the average crude oil price of Brent and WTI for the past 12 years to 114 and 104 US dollars per barrel (formerly 105 and 101 US dollars per barrel). The 12-year oil price trend may be similar to that in 11 years, and the high point appears in Q2. It is expected that the average price of crude oil in 1QBrent and WTI for the 12 years will be 120 (previously 112) and 104 (previously 102) US$/barrel. In Q2, the average price of crude oil in Brent and WTI is expected to rise with the advent of the peak season and geopolitical concerns. At 125 and 112 U.S. dollars per barrel, 3Q and 4Q may fall slightly with the relative ease of geopolitics.

The basic support for high oil prices continues to weaken. In February, the three major agencies reduced their global oil demand forecasts for 11 and 12 years again. After the downward adjustment, it is estimated that the annual demand increase will be 0.8-0.9 million barrels/day (previously 0.7-1.0 million barrels/day). It is estimated that the demand increase will be 0.8-1.3 million barrels/day in 12 years (previously 1.0-1.3 million barrels/day).

Our latest view on the Iranian turmoil is that the possibility of a war breaks out is small, but the Iranian storm has entered the late stage of the game, and the uncertainty has increased. Any sensitive news may push the oil price higher. We think that the follow-up Brent oil price may rise to 135 US dollars / barrel.

In March, CNOOC focused on the high oil price benefit varieties. The high oil prices will help restore the valuation of COSL (the average value since 2009 is 20 times, currently 17 times), and the official launch of short-term deepwater exploration also constitutes a catalyst for the company's stock price rise.

The refined oil price adjustment window was opened again at the end of February, and the Development and Reform Commission is expected to increase gasoline and diesel prices again as early as the beginning of March. At the latest, after the “**”, the petrochemical industry will be favored. In addition, the 3-4 month Development and Reform Commission is expected to release the revised draft of refined oil pricing mechanism. We look forward to the annual report of Sinopec on March 26th to bring surprises.