China Galaxy Securities: Oil price center remains stable, focusing on the growth of the petrochemical industry.

China Galaxy Securities released a research report stating that the cost side is not the key factor affecting industry profitability, and the key factor is the improvement in industry supply and demand. Currently, the petroleum and chemical industry is still at a high level in terms of construction projects. With the gradual manifestation of policy stimulus effects, end consumption may see some improvement, but it is expected that the industry's existing production capacity and construction capacity still need time to digest. Optimistic about the structural opportunities in the industry, it is recommended to focus on growth-oriented targets. China Galaxy Securities' main points are as follows: In December, oil prices fluctuated narrowly. As of December 24, the average monthly prices of Brent and WTI in December were $72.9 and $69.4 per barrel, respectively, down by 0.7% and 0.1% month-on-month. On the supply side, on December 5th, the OPEC+ meeting announced the extension of the voluntary production cut measures announced in April 2023 of 1.65 million barrels per day until the end of 2025; the voluntary additional production cut measures announced in November 2023 of 2.2 million barrels per day extended until the end of March 2025. From April 2025 to September 2026, OPEC+ will gradually exit depending on market conditions, with expectations of a gradual recovery in future supply. On the demand side, in the short term, the refinery utilization rate in the United States for the week of December 13 was 91.8%, down 1.5 percentage points from the end of November. In the medium term, OPEC has lowered global oil demand expectations for five consecutive months. On December 11, the latest monthly report from OPEC lowered the global oil demand growth rates for 2024 and 2025 from 1.82 million barrels per day to 1.61 million barrels per day and from 1.54 million barrels per day to 1.45 million barrels per day, respectively. On the inventory side, for the week of December 13, commercial crude oil inventories in the United States were 421.02 million barrels, down by 2.36 million barrels from the end of November. Considering the expectation of seasonal inventory accumulation, it is still difficult to reduce inventory in the later period. We believe that without extreme supply interruptions on the supply side, the outlook for crude oil supply and demand remains weak, with the recent Brent crude oil price range referencing $70-80 per barrel. It is recommended to closely monitor future OPEC+ production policies, Federal Reserve monetary policies, geopolitical developments, etc. From January to November, China's apparent crude oil demand fell slightly by 1.0% year-on-year. From January to November, China processed 649 million tons of crude oil, a decrease of 1.8% year-on-year; crude oil production was 195 million tons, an increase of 1.9% year-on-year; crude oil imports were 506 million tons, a decrease of 1.9% year-on-year; apparent crude oil consumption was 699 million tons, a decrease of 1.0% year-on-year; external dependence was 72.3%, remaining high. From January to November, China's apparent natural gas demand grew significantly by 9.4% year-on-year. From January to November, China's apparent natural gas consumption was 385.1 billion cubic meters, an increase of 9.4% year-on-year; production was 224.6 billion cubic meters, an increase of 7.1% year-on-year; imported natural gas was 166.1 billion cubic meters, an increase of 12.2% year-on-year; external dependence was 43.1%. From January to November, China's apparent refined oil demand saw a slight decrease of 1.0% year-on-year. From January to November, China produced 385 million tons of refined oil, a decrease of 2.0% year-on-year; exported 34.7 million tons of refined oil, a decrease of 11.0% year-on-year; apparent consumption of refined oil was 351 million tons, a decrease of 1.0% year-on-year; the apparent consumption of gasoline, kerosene, and diesel changed by 1.3%, 8.9%, and -4.3% year-on-year, respectively. In November, domestic gasoline supply increased, and with the backdrop of rising export profitability, gasoline exports increased by 88.1% month-on-month. Investment recommendations: It is expected that Brent oil prices will operate in the range of $70-80 per barrel in the near term. The cost side is not the key factor affecting industry profitability, and the key factor is the improvement in industry supply and demand. Currently, the petroleum and chemical industry is still at a high level in terms of construction projects. With the gradual manifestation of policy stimulus effects, end consumption may see some improvement, but it is expected that the industry's existing production capacity and in-process capacity still need time to digest. Optimistic about structural opportunities in the industry, it is recommended to focus on growth-oriented targets, and to consider investments in companies such as Ningxia Baofeng Energy Group, Satellite Chemical, and Qingdao Gon Technology. Risk factors: Risks of significant increases in raw material prices, risks of lower-than-expected downstream demand, risks of decline in the business outlook of main products, risks of unexpected delays in project completion, etc.