China Galaxy Securities: Crude oil returns to supply and demand, pricing focuses on growth targets

The Zhitong Finance App learned that China Galaxy Securities released a research report saying that Brent oil prices are expected to fluctuate in the 60-70 US dollars/barrel range recently. The cost side is not yet the key to influencing industry profits; the key depends on the improvement in industry supply and demand. The recent global geopolitical conflict and trade situation are still uncertain. It is expected that domestic economic stimulus policies will continue to gain strength, and we are optimistic about structural opportunities in the chemical industry as the potential of domestic demand is unleashed.

The main views of China Galaxy Securities are as follows:

The center of gravity of oil prices rose in June

As of June 27, the average monthly prices of Brent and WTI were 69.9 and 67.8 US dollars/barrel, respectively, up 9.2% and 11.3% from the previous month. On the supply side, on the one hand, the conflict between Israel and Iraq suddenly escalated in mid-June. The market feared a rapid decline in Iranian crude oil exports, the blockade of the Strait of Hormuz, etc., and the geographical risk premium rose rapidly. In late June, as the geographical situation in the Middle East eased, oil prices fell from a high level. On the other hand, based on factors such as regaining market share and punishing excess producers, the market is concerned that major OPEC+ oil producers may decide to continue increasing oil production in August at the July meeting. On the demand side, the US has entered the peak season for road trips. In the week ending June 20, the operating rate of US refineries was 94.7%, an increase of 1.3 percentage points over the end of May. According to seasonal rules, the operating rate of US refineries is expected to remain high in July without the impact of the hurricane.

In the medium term, crude oil consumption demand is still being guided by the global trade situation. The “World Economic Outlook” report released by the IMF in April lowered the global economic growth forecast for 2025 and 2026 to 2.8% and 3.0%, respectively, from 3.3% at the beginning of the year. On the inventory side, for the week ending June 20, US commercial crude oil inventories were 415.11 million barrels, down 20.95 million barrels from the end of May. The bank believes that the OPEC+ production reduction alliance's support on the supply side has weakened marginally recently, but the peak travel season in the Northern Hemisphere and the peak power generation season in the Middle East will support crude oil demand in stages. Without extreme geological events, the price of Brent crude oil is expected to fluctuate around 60-70 US dollars/barrel.

From January to May, China's apparent demand for crude oil fell narrowly, down 0.1% year on year

In January-May, China processed 299 million tons of crude oil, up 0.3% year on year; crude oil production was 90 million tons, up 1.3% year on year; crude oil imports were 230 million tons, up 0.3% year on year; apparent consumption of crude oil was 318 million tons, down 0.1% year on year; external dependence remained high at 72.2%.

China's apparent demand for natural gas declined in January-May, down 0.8% year on year

In January-May, China's apparent consumption of natural gas was 174.6 billion square meters, down 0.8% year on year; output was 109.6 billion square meters, up 6.1% year on year; import volume was 67.7 billion square meters, down 9.5% year on year; external dependence was 38.8%, down 3.7 percentage points year on year.

From January to May, China's apparent demand for refined oil products declined, down 6.8% year on year

From January to May, China's refined oil production was 166 million tons, down 7.8% year on year; refined oil exports were 14 million tons, down 16.3% year on year. Among them, May coincided with the May 1st holiday. Domestic gasoline resources were mainly guaranteed, and gasoline export profits were inverted. In order to balance domestic supply and demand, gasoline exports fell 11.9% month-on-month in May. In January-May, the apparent consumption of refined oil products was 152 million tons, a year-on-year decrease of 6.8%. Among them, apparent consumption of gasoline, kerosene, and diesel decreased by 7.1%, 7.3%, and 6.5%, respectively.

Risk Alerts

1. Risk of increased international trade friction; 2. Risk of downstream demand falling short of expectations; 3. Risk of declining popularity of main products; 4. Risk of projects falling short of expectations.