Orient Securities: It is expected that global energy refining will continue to be tight, and domestic refining and chemical production are expected to start a long-term boom

The Zhitong Finance App learned that Orient Securities released a research report saying that the core of the boom in this round of refined oil products, especially diesel, comes from the impact of the Middle East conflict and the Russian-Ukrainian conflict on supply. The growth rate of China and the Middle East, which originally provided major increases, is expected to decline in the future due to policy adjustments and geographical influence. As a result, the bank expects global energy refining to continue to be tight. Domestic refining and chemical companies are expected to start a long-term boom cycle under the influence of the boom in overseas refined oil products.

Orient Securities's main views are as follows:

Global energy refining will continue to be tight

The core of the boom in this round of refined oil products, especially diesel, comes from the impact of the Middle East conflict and the Russian-Ukrainian conflict on supply. In terms of continuity, the blockade of the Strait of Hormuz may be relatively short-term, while the destruction of refineries in Russia and the Middle East is expected to have a longer-term impact. For example, Russia's crude oil processing volume remained at about 5.6 million b/d in the early days of the Russian-Ukrainian conflict. However, as the war continues and Ukraine's selective attack, according to statistics, the amount of crude oil processed in Russia dropped to about 3.6 million barrels per day in July, and there is a possibility of further damage. Leaving aside the sudden factors of the war, the growth rate of global refining capacity has actually slowed drastically in the past few years. In 2018-2025, refining growth in regions other than China almost stagnated, reflecting the industry's expectations that the life cycle of refined oil products will continue to shrink. Therefore, the bank believes that it will be difficult for the industry to once again increase refining capital expenses due to the boom in refined oil products. Meanwhile, the growth rate of China and the Middle East, which originally provided major increases, is expected to decline in the future due to policy adjustments and geographical influence. As a result, the bank expects global energy refining to continue to be tight.

Domestic refining and chemical industry is expected to start a long-term boom cycle

Diesel is a very simple product in refining, and the price difference between overseas diesel and crude oil has remained at the level of 10-20 US dollars/barrel for a long time. However, after the outbreak of the Middle East conflict, the difference in diesel prices has reached 60 US dollars/barrel. An overly prominent boom is likely to encourage overseas refineries to increase diesel production by reducing the yield of lightweight components (gasoline, naphtha) in the short term. At the same time, expanding exports of domestic oil blending components will also increase the supply of raw materials for subsequent lightweight components for chemical production, and the domestic refining and chemical boom will increase accordingly. In the medium to long term, excessive profits from primary products such as diesel will inevitably shake the will of most companies to develop deep-processed products, causing global “oil conversion” investment to be suppressed, and the recovery of the chemical industry boom will accelerate. Finally, after the Middle East conflict is over, it is likely that the increase in crude oil supply will be significantly higher than the increase in refining energy, while lower oil prices will push the refinery chemical sector into a longer boom cycle.

Investment recommendations and investment targets

The bank believes that under the influence of the boom in overseas refined oil products, domestic refining and chemical companies are expected to start a long-term boom cycle. It is mainly optimistic about Rongsheng Petrochemical and Sinopec. The former is the 51% controlling shareholder of Zhejiang Petrochemical, which has a refining capacity of 40 million tons, and the latter is the largest domestic state-owned refining company. At the same time, these two have also received national export quotas for refined oil products for a long time, and can also directly benefit from the high overseas boom. In addition, major domestic refining and chemical companies include Hengli Petrochemical and Dongfang Shenghong. At the same time, domestic companies that already have refining and chemical projects overseas benefit more directly. Related companies include Hengyi Petrochemical, which has an 8 million ton refining project in Brunei.

Risk Alerts

Changes in the macroeconomic situation; errors in production capacity statistics; changes in assumptions affect calculation results.