In the context of rising energy security importance due to global geopolitical tensions, Morgan Stanley believes that the strategic value of China's three major oil companies (&#34;Three Barrels of Oil&#34;) is becoming increasingly prominent.
According to news from the Wind Trading Desk, Morgan Stanley analysts Jack Lu and others released a latest report stating that geopolitical tensions and supply chain reshaping have made it so that China's &#34;domestic upstream producers and energy import assets connected to pipelines should benefit from a security-driven valuation reassessment.&#34;
Although freight inflation poses certain limitations on the profit margins of downstream operators, overall profitability still has room for growth. The bank reassesses the core macro fundamentals of the &#34;Three Barrels of Oil,&#34; based on the upward shift in the crude oil price center. The report clearly states: &#34;We are optimistic about these three oil giants.&#34;
<h2>PetroChina: Local Energy Security Champion</h2>
Among the three oil companies, Morgan Stanley highly evaluates the strategic position of PetroChina, calling it the &#34;local energy-security champion.&#34;
The research report points out: &#34;PetroChina stands out as the core beneficiary of the structurally enhanced energy security value. The company controls over 80% of China's proven oil and gas reserves.&#34;
Regarding its transformation in business model, the report states: &#34;Over the past three years, PetroChina has significantly shifted its positioning from a 'national service' role to an industry champion, evolving from a price taker to an effective price maker in the local natural gas market.&#34;
To reflect this strategic upgrade, Morgan Stanley has significantly raised the target price-to-earnings ratio for PetroChina's exploration and production (E&amp;P) business from 2 times to 4 times, &#34;to reflect the rising energy security value.&#34;
Based on the sum-of-the-parts (SOTP) valuation method, Morgan Stanley has raised the target price for PetroChina's H-shares by 29% to HKD 13.25 and the target price for A-shares by 29% to RMB 14.70.
Morgan Stanley noted: &#34;While geopolitical tensions related to Iran may ease over time, we believe that the market's renewed focus on energy security should persist as part of a broader de-risking framework, thereby supporting PetroChina's strategic value and profitability sustainability.&#34;
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/5effc258-6d6a-4520-acbb-7d24e0da8dcc.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/5effc258-6d6a-4520-acbb-7d24e0da8dcc.png"/>
<h2>Sinopec: Upstream &#34;Pure Play&#34;</h2>
For Sinopec, Morgan Stanley defines it as the &#34;upstream 'pure play'&#34; most sensitive to oil prices.
Sinopec's profits last year mainly came from upstream, with downstream performance being lackluster, making it the most sensitive to oil prices among the three oil companies.
The geopolitical situation has led to freight inflation, which poses challenges for refineries. The report warns: &#34;Freight inflation may compress refining margins by about USD 3 per barrel compared to 2025 levels.&#34; However, Morgan Stanley also emphasizes that this pressure will be completely offset by other factors: &#34;Inventory gains may contribute about USD 2 per barrel, while the appreciation of the RMB may add another USD 1 per barrel tailwind.&#34;
Not only that, Morgan Stanley believes that Sinopec's downstream business even has unexpected potential: &#34;If supply tightness persists... China's domestic fuel and chemical market may shift from structural oversupply to undersupply, supporting stronger profit margins and pushing Sinopec's downstream earnings upward.&#34;
Morgan Stanley has thus raised the target price for Sinopec's H-shares by 9% to HKD 6.98, and the target price for A-shares by 33% to RMB 8.00.
<h2>CNOOC: Cost Advantage and Production Growth</h2>
For CNOOC, Morgan Stanley's optimistic logic focuses on extreme cost control and production capacity. The report believes that CNOOC has &#34;the best cost structure and the highest production growth among peers.&#34;
To align with the changes in Brent crude oil prices of PetroChina and Sinopec, Morgan Stanley has also raised its oil price forecast for CNOOC. Morgan Stanley expects that CNOOC will continue to outperform the three major Chinese oil giants in terms of costs. The low-cost strategy and strong execution record should position CNOOC favorably to fully capture the benefits of high oil prices.
Morgan Stanley has raised its earnings forecast for CNOOC by 25% for 2026 and by 13% for 2027. Based on the new earnings forecast, Morgan Stanley has significantly raised CNOOC's target price by 64% to HKD 28.90.
Morgan Stanley pointed out: &#34;The company is committed to a dividend payout ratio of no less than 45% from 2025 to 2027, which may indicate management's confidence in constructive oil prices and the company's profitability.&#34;

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The geopolitical situation reshapes the value of "energy security," and Morgan Stanley is optimistic about China's "three oil giants." The bank believes that PetroChina controls core domestic resources and is evolving from a price taker to a "local energy security champion" with pricing power. Sinopec, although facing freight inflation pressure, still has upward potential in downstream profitability. CNOOC, on the other hand, amplifies profit elasticity under high oil prices with its extreme cost efficiency and production growth potential

- Morgan Stanley highlights the strategic value of China's three major oil companies amid rising energy security concerns due to geopolitical tensions and supply chain adjustments.  
- The report asserts that domestic upstream producers and energy import assets in China are set to benefit from a security-driven valuation reassessment, particularly emphasizing China National Petroleum Corporation's role as a local energy security champion.  
- The firm has raised target prices for these companies significantly, reflecting their enhanced strategic value and persistent profitability in the face of evolving geopolitical landscapes.

A New Era of Energy Security: Reassessing the "Three Oil Giants"?