China Securities Co., Ltd.: Market underestimates the short-term and medium-term upward risks of oil prices, and LNG shortages in multiple Asian countries are turning to coal-fired power generation.

China Securities Co., Ltd. released a research report stating that the market has underestimated the short-term and medium-term upward risks of oil prices. In the short term, the closure of the Strait of Hormuz for several weeks has forced more oil wells to shut down, and prolonged closures will result in permanent loss of some production capacity. In the long term, under the backdrop of low capital expenditure, the number of inventory wells and new drilling wells in the United States has repeatedly hit record lows, meaning that the high oil production in the US is unsustainable, and the future remaining supply and pricing power is expected to be controlled by the Middle East. The market had previously overly optimistically estimated the progress of the end of the Middle East conflict, however, the contradictions in the real world are becoming increasingly prominent, and the market has begun to gradually price in the uptrend in forward oil prices recently, also needing to pay attention to potential inflation risks. Key points from China Securities Co., Ltd.: Crude oil: Geopolitical game fluctuates, oil prices drop this week This week (June 8th to 14th), the US-Iran conflict continued to escalate, with war and negotiations progressing simultaneously. In the first half of the week, new military conflicts erupted, with the escalation of geopolitical risks leading to a slight increase in oil prices. However, as Iran announced a halt to attacks, oil prices quickly fell. On June 12th, President Trump announced the cancellation of military strikes against Iran and indicated that a peace agreement was imminent, resulting in a significant reduction in geopolitical risks and Brent oil prices hitting a two-month low. This week, Brent crude oil spot price was $94.49 per barrel, down 5.00% compared to last week; WTI crude oil spot price was $88.42 per barrel, down 5.03% compared to last week. Xinjiang Coal-to-Chemical: Energy security + cost advantages, Xinjiang Coal-to-Chemical industry is expected to enter a golden age From a national strategic perspective, Xinjiang has benefited from two major shifts: from coastal economy to the Belt and Road Initiative, transforming from a rearline to a frontline, taking geographical advantage. The balance between energy security and dual carbon environmental protection has shifted, leading to a resurgence in the coal-to-chemical industry. Xinjiang has become the focus of energy security relying on its resource advantages. From Xinjiang's own perspective, development for stability has become the mainstream. The historical balance between development and stability is being adjusted in Xinjiang, which is currently in an important strategic period for high-quality development. The development of Xinjiang's coal-to-chemical industry and the US shale gas industry have similarities, requiring long-term investment in basic technology and infrastructure by the government to overcome external energy dependence. Natural gas: Several Asian countries shift to coal-fired power generation due to LNG supply shortages Tensions in the Strait of Hormuz have led to a disruption in Qatar's LNG supply of nearly 10.2 million tons/year, forcing several Asian countries to restart or increase coal-fired power generation. Japan has lifted the 50% capacity utilization limit for coal-fired power; Thailand has restarted two coal-fired units; South Korea has experienced a 30% increase in coal-fired power generation; India has restarted idle coal plants and required imported coal-fired plants to operate at full capacity. Research firm Rystad Energy predicts that by 2026, Asia will increase coal consumption by approximately 75 million tons due to this situation. As of June 13th, US natural gas inventories were at 2686 Bcf, up 108 Bcf from the previous week and up 88 Bcf from the same period last year; the average price of NYMEX natural gas this week was $3.14 per million British thermal units, down 3.1% from last week. Risk warnings: High risks of significant fluctuations in international oil prices; risks of downstream demand recovery falling short of expectations; risks of overcapacity and policy regulation.