According to the report from China Galaxy Securities, the cost side is not the key factor affecting industry profitability; the key lies in the improvement of supply and demand in the industry. Currently, the petrochemical industry has a high level of ongoing projects. As the effects of policy stimulus gradually manifest, terminal consumption may see some improvement, but it is expected that the existing production capacity and ongoing capacity in the industry will still take time to digest. The report is optimistic about structural opportunities in the industry and suggests focusing on growth-oriented targets.

The main points from China Galaxy Securities are as follows:

December oil prices fluctuate within a narrow range.

As of December 24, the average prices for December Brent and WTI were $72.9 and $69.4 per barrel, respectively, down 0.7% and 0.1% month-on-month.

Supply side: On December 5, the OPEC+ meeting announced the extension of the voluntary production cut of 1.65 million barrels per day, announced in April 2023, until the end of 2025; the voluntary additional production cut of 2.2 million barrels per day, announced in November 2023, will be extended until the end of March 2025, and will gradually exit based on market conditions from April 2025 to September 2026, with expectations of a rebound in long-term supply.

Demand side: In the short term, the U.S. refinery utilization rate for the week of December 13 was 91.8%, down 1.5 percentage points from the end of November. In the medium to short term, OPEC has lowered its global oil demand forecast for five consecutive months. The latest monthly report from OPEC on December 11 revised the growth rates for global oil demand in 2024 and 2025 from 1.82 million and 1.54 million barrels per day to 1.61 million and 1.45 million barrels per day, respectively.

Inventory side: For the week of December 13, U.S. commercial crude oil inventories stood at 421.02 million barrels, a decrease of 2.36 million barrels from the end of November. Considering the seasonal accumulation expectations still exist, it is expected that the difficulty of continuous destocking in the future will be high. We believe that, unless there are extreme supply disruptions on the supply side, the oil supply and demand expectations remain weak, with recent Brent crude oil price running in the range of $70-80 per barrel. It is recommended to closely monitor subsequent OPEC+ production policies, Federal Reserve monetary policies, and the evolution of geopolitical situations.

From January to November, China's apparent crude oil demand slightly declined, down 1.0% year-on-year.

From January to November, China's crude oil processing was 649 million tons, down 1.8% year-on-year; crude oil production was 195 million tons, up 1.9% year-on-year; crude oil imports were 506 million tons, down 1.9% year-on-year; apparent crude oil consumption was 699 million tons, down 1.0% year-on-year; the dependence on foreign sources was 72.3%, remaining at a high level.

From January to November, China's apparent natural gas demand grew significantly, up 9.4% year-on-year.

From January to November, China's apparent natural gas consumption was 385.1 billion cubic meters, up 9.4% year-on-year; production was 224.6 billion cubic meters, up 7.1% year-on-year; imported natural gas was 166.1 billion cubic meters, up 12.2% year-on-year; the dependence on foreign sources was 43.1%.

From January to November, China's apparent demand for refined oil slightly declined, down 1.0% year-on-year.

From January to November, China's refined oil production was 38.5 million tons, down 2.0% year-on-year; refined oil exports were 3.47 million tons, down 11.0% year-on-year; apparent refined oil consumption was 35.1 million tons, down 1.0% year-on-year; The apparent consumption of gasoline, kerosene, and diesel changed by 1.3%, 8.9%, and -4.3% year-on-year, respectively. Among them, in November, the domestic supply of gasoline increased, and against the backdrop of recovering export profits, the export volume of gasoline increased by 88.1% month-on-month.

Investment Suggestions :

It is expected that the Brent oil price will operate in the range of 70-80 USD/barrel in the near term. The cost side is not the key to influencing industry profitability; the key lies in the improvement of industry supply and demand. Currently, the oil and petrochemical industry has a high level of ongoing projects. As the effects of policy stimulus gradually manifest, terminal consumption may see some improvement, but it is expected that the industry's existing production capacity and ongoing capacity will still require time to digest. We are optimistic about structural opportunities in the industry and recommend focusing on growth-oriented targets, including BAOFENG ENERGY (600989.SH), STL (002648.SZ), and Guoen Co., Ltd. (002768.SZ).

Risk Warning: Risks of significant raw material price increases, risks of downstream demand not meeting expectations, risks of declining prosperity of main products, risks of project production not meeting expectations, etc