Dongxing: Oil prices fluctuate at high levels, and the sector is likely to maintain strong momentum.

Dongxing released a research report stating that in the context of oil prices likely stabilizing at mid to high levels, focus should be placed on companies that offer high dividends and robust growth. With the advancement of market capitalization management assessments, companies that demonstrate both dividend capability and willingness are expected to maintain high dividend rates in the future. The dividend rates in 2025 for PetroChina, China Petroleum & Chemical Corporation, CNOOC Limited, and CNOOC are projected to be 54.68%, 81%, 44.87%, and 44.87%, respectively. As earnings gradually expand in the future, the dividend rates for the three major oil companies are also expected to continue rising, and their dividend rates will remain relatively high within the high-dividend sector. The bank recommends CNOOC Limited (600938.SH) and CNOOC (00883). Other companies that are also expected to benefit include PetroChina (601857.SH), PETROCHINA (00857), and Xinjiang Xintai Natural Gas (603393.SH). Dongxing's main points are as follows: The crude oil market is currently caught in a tug-of-war between "strong dollar suppressing valuations" and "geopolitical conflicts supporting prices," resulting in a significant recovery in profits for upstream oil and gas exploration, refining, and trading sectors. The current crude oil market is in fierce contention between "strong dollar suppressing valuations" and "geopolitical conflicts supporting prices." In the short term, the trend of oil prices will heavily depend on the evolution of the situation in the Middle East: if conflicts ease and oil prices fall, a strengthening dollar will impose a dual blow to oil prices; conversely, if tensions persist, the rigid supply of crude oil will exhibit strong resilience against price declines, although high oil prices will increasingly constrain global demand. The domestic economy demonstrates strong resilience and recovery capacity. The domestic manufacturing PMI for 2025 is projected to be 49.57%. From January to June 2026, the domestic manufacturing PMIs were 49.3%, 49.0%, 50.4%, 50.3%, 50.0%, and 50.3%, respectively. The trends in PMI validate the strong resilience and recovery capability of the domestic economy. As the pace of post-holiday resumption of work accelerates and the benefits of stable growth policies continue to be released, the manufacturing industry has stabilized and begun to recover. However, close attention is still needed on the sustainability of domestic demand recovery, the actual impact of internal demand expansion policies, and the potential impacts of overseas geopolitical conflicts on global inflation and the profitability of companies in oil and gas exploration, refining, and trading sectors. Profitability in the oil and gas exploration sector is improving. In 2025, the total operating revenue of domestic A-share oil and gas exploration is projected to be 409.709 billion yuan, a year-on-year decrease of 5.53%, with a total net profit attributable to the parent company of 123.768 billion yuan, a year-on-year decrease of 12.15%. In Q1 2026, total operating revenues for oil and gas exploration reached 118.768 billion yuan, a year-on-year increase of 7.84%, with total net profit attributable to the parent company of 39.545 billion yuan, a year-on-year increase of 5.79%. There has been a significant recovery in profits for the refining and trading sector. In 2025, the total operating revenue for domestic A-share refining and trading is projected to be 6.73825 trillion yuan, a year-on-year decrease of 6.46%, with total net profit attributable to the parent company of 195.631 billion yuan, a year-on-year decrease of 12.14%. In Q1 2026, although the revenue for the refining and trading sector faced pressure, it successfully achieved a significant recovery in profitability through inventory appreciation, cost compression, and optimization of product structure. In Q1 2026, total operating revenue for refining and trading was 1.696149 trillion yuan, a year-on-year decrease of 3.63%, with net profit attributable to the parent company of 78.415 billion yuan, a year-on-year increase of 22.22%. For oil and gas exploration and refining and trading, with oil prices in a high, fluctuating range, the sector may maintain a high level of prosperity. Oil prices are expected to decline and stabilize in 2025, followed by a significant rise in the first half of 2026 due to escalating geopolitical conflicts. From January to December 2025, the monthly average spot price of Brent crude oil is projected to be $68.25 per barrel, a year-on-year decrease of 14.24%. In 2026, the average spot price for Brent crude oil in Q1 is expected to be $76.48 per barrel, an increase of $1.45 per barrel year-on-year, or 1.93%, while in Q2 the average price is expected to be $97.6 per barrel, an increase of $30.69 per barrel compared to the previous month, a rise of 45.87%. Expectations for demand growth, significant tightening on the supply side, combined with the U.S. Strategic Petroleum Reserve (SPR) dropping to a 40-year low, will lead to high volatility in oil prices. The International Energy Agency raised its oil demand growth forecast for 2026. In its latest monthly report on January 21, the IEA estimated that global oil demand will grow by an average of 930,000 barrels per day in 2026. The supply side is tightening significantly. At the beginning of 2026, the U.S.-Iran conflict caused a dramatic drop in export volumes, with the seven-day moving average indicating that crude oil exports from the Gulf region fell sharply from nearly 80% of the normal level in early July to about 36% of the pre-war level. Additionally, the capacity of fully loaded oil tankers on the Red Sea shipping route has decreased by 22%, and Saudi Arabia's crude oil exports have decreased by 2.4 million barrels per day compared to the same period last year. OPEC+'s announced production increases have not translated into actual flow due to impediments in shipping routes, resulting in reduced compliance with OPEC's unified production cuts. Global inventories are being consumed at an accelerated pace, compounded by a significant drop in the U.S. SPR. It is expected that by December 2026, oil inventories in OECD member countries will fall below 2.3 billion barrels, approaching the lowest level since 2003. As of August 11, the U.S. SPR, as the world's most important buffer, has dropped to just below 300 million barrels, marking a 43-year low, the lowest level since 1983. In the medium term, the main focus for crude oil will remain on the evolution of the Middle East situation and the interplay of supply and demand fundamentals. On one hand, the complete recovery of oil production and refining capacity in the Middle East will require time; against the backdrop of continuously decreasing global oil inventories, there is limited room for oil prices to fall, and high prices still offer support. On the other hand, the subsequent logic of replenishing stocks is expected to drive oil prices up, and it is anticipated that the average level for oil prices will maintain a high level of fluctuations. As oil prices remain high amidst fluctuations, the revenues and profits of domestic A-share oil and gas exploration and refining and trading sectors will be positively correlated with oil prices. In 2025, the average spot price of Brent crude oil is projected to be $68.25 per barrel, a year-on-year decrease of 14.24%. The total operating revenue for domestic A-share oil and gas exploration is expected to be 409.709 billion yuan, a year-on-year decrease of 5.53%; the total operating revenue for refining and trading is anticipated to be 6.73825 trillion yuan, a year-on-year decrease of 6.46%. In Q1 2026, the average spot price of Brent is expected to be $76.48 per barrel, a year-on-year increase of 1.93%. The total operating revenue for domestic A-share oil and gas exploration is expected to reach 118.768 billion yuan, a year-on-year increase of 7.84%; the refining and trading sector, impacted by geopolitical conflicts, has expanded sales profits by relying on inventory or increasing product added value, resulting in a net profit attributable to the parent company reaching 78.415 billion yuan, a year-on-year increase of 22.22%. Risk warnings: geopolitical risks; risks of significant energy price volatility; risks of demand falling short of expectations.