Ping An Securities: Supply and geopolitical factors temporarily boost oil prices, but excess pressure on oil fundamentals is greater in 2025.

Ping An Securities released a research report stating that the global pressure on oil supply remains significant. By 2025, the global incremental oil supply may surpass demand increment, leading to a certain level of accumulation. The geopolitical turmoil highlights the importance of energy independence, and expenditures on traditional energy development are expected to increase again. Increased exploration efforts for oil and gas, clear goals for increasing reserves and production, great potential for expanding overseas markets, and top oil service companies with technologies at international advanced levels still have value exploration space. At the same time, with the deepening implementation of the national energy security strategy and the promotion of integrated refining and chemical projects, the impact of international oil price fluctuations on leading companies' performance is expected to decrease. As important guarantees for national energy security, the "big three" oil companies are expected to continue benefiting from relevant policy support. Key points from Ping An Securities: The gradual slowdown of strong US dollar transactions, short-term oil price increases driven by supply and geopolitical disruptions International oil price review: In the first week of November, there were differences in the Israel-Palestine ceasefire negotiations, and the Middle East situation still had the potential for further escalation. OPEC+ announced an extension of voluntary production cuts until the end of this year. Both Europe, America and China have entered interest rate cut cycles, which is expected to stimulate crude oil demand, leading to an increase in oil prices. On November 6th, Trump won the US presidential election, and on November 8th, the Federal Reserve announced a 0.25% interest rate cut. Powell mentioned a possible slowdown in the pace of interest rate cuts. The Trump administration advocates "low taxes domestically and high tariffs externally", encouraging increased traditional energy development and has demands to hedge potential inflation pressures by suppressing oil prices. In the mid to late of November, the strong US dollar transactions and over expectations of fundamental oversupply in crude oil led to a continuous decline in WTI oil prices. In recent days, the gradual slowdown of strong US dollar transactions has led to a rebound in oil prices. On November 18th, the United States authorized Ukraine to use European and American long-range weapons to strike targets inside Russia, causing risks to Russian oil production facilities. The escalation of geopolitical risks has driven a temporary rise in oil prices. Fundamentally, demand for heating oil in the US winter and exports from Latin America have been strong, while gasoline and diesel continue to deplete in storage. Demand for refined oil products in Europe and China has been average. Adjustments to China's export tax rebate policy will further increase the cost pressure on gasoline and diesel exports. With cooler weather, the diesel off-season has arrived, but there are signs of a rebound in gasoline demand. OPEC+ extends production cut plan again, facing significant oversupply pressure in 2025 International oil price outlook - Institutional forecasts: The EIA believes that continuing geopolitical risks and the reduction of global oil inventories due to OPEC+ cuts will raise the average Brent crude oil price to $78 per barrel in 2025Q1. As global oil production grows in 2025Q2, EIA forecasts that global oil inventories will increase by an average of 400,000 barrels per day. In the second half of 2025, inventories will increase by an average of 600,000 barrels per day, putting downward pressure on oil prices. It is predicted that the average Brent crude oil price in 2025H2 will fall to $74 per barrel, with the full year 2025 average around $76 per barrel. International oil price outlook - This report's forecast: The performance of US gasoline and diesel demand remains good. Combined with the upcoming winter heating season, diesel demand is expected to recover. However, as more European and American households switch to gas and electricity for heating, there may be lower-than-expected demand for heating oil in the peak season. Although OPEC+ has once again extended its voluntary production cut plan of 2.2 million barrels per day until the end of this year, there are differences among member countries. The future maintenance of production cut plans may be difficult, leading to continued significant pressure on global oil supply. Referring to the historical trend of lower demand and oil prices in the fourth quarter compared to the third quarter, it is expected that the 2024Q4 Brent oil price will fluctuate in the range of $70-85 per barrel, with a decrease of approximately $5 per barrel compared to Q3. The central price of oil in 2025 may further decrease: on the one hand, OPEC+ voluntary production cut plan of 2.2 million barrels per day gradually phased out after the end of September this year, leading to increased production expectations. After Trump's inauguration, there may be an increase in traditional energy development in the US, with oil companies increasing shale oil extraction. As a result, oil production in the Americas, led by the US, may accelerate. On the other hand, on the demand side, the slowing economic growth in Europe and America, the lack of clear signs of economic recovery in China, and the increasing penetration rates of LNG heavy trucks and electric vehicles will continue to squeeze gasoline and diesel demand. Therefore, it is expected that by 2025, the incremental global oil supply may surpass demand increment, presenting a certain level of accumulation. In conclusion, the oil price range in 2025 may decrease by 5-10 dollars per barrel compared to the previous year, and this judgment remains unchanged from the bank's report last month. Although the short-term supply and demand fundamentals remain tight, the medium-term may shift from tight to loose. In terms of prices, short-term oil prices still have strong support, and there are concerns about downward pressure in the medium term. However, the geopolitical turmoil highlights the importance of energy independence, and expenditures on traditional energy development are expected to increase again. Increased exploration efforts for oil and gas, clear goals for increasing reserves and production, great potential for expanding overseas markets, and top oil service companies with technologies at an international advanced level.Still has potential for value discovery, recommend paying attention to: Offshore Oil Engineering, China Oilfield Services.At the same time, with the deep implementation of the national energy security strategy and the advancement of the construction of integrated refining projects, the impact of international oil price fluctuations on the performance of leading enterprises is expected to decrease. As important guarantees for national energy security, the "Big Three Oil Companies" are expected to continue to benefit from relevant policy support. It is recommended to pay attention to: Petrochina, CNOOC Limited, China Petroleum & Chemical Corporation. Risk factors: 1) Risk of weak macroeconomic growth leading to sluggish demand: If the European and American economies continue to weaken and the consumption recovery of emerging economies such as China is lower than expected, it may lead to weak international crude oil demand, and there is a risk of re-evaluating the fundamentals; 2) Risk of supply disruption: Risks of OPEC+ changing crude oil supply plans, adjusting production increase or decrease plans; uncertainties in the adjustment of capital expenditures of U.S. oil companies, the speed of shale oil production release, and the number of drilling rigs; 3) Uncertainty in the effectiveness of monetary policy: The opening of the interest rate cut cycle by the Federal Reserve, but the uncertainty of its impact on the economy and oil demand remains significant; 4) Uncertainty of geopolitical situation: Changes in geopolitical situations can cause significant disruptions in oil price trends; 5) Risk of energy iteration: Risks of new energy accelerating the replacement of traditional energy sources, risks of adjustments to global net zero emissions policies by 2050.