Recent analysis indicates that with oil price benchmarks expected to hold at mid-to-high levels, companies offering strong dividend yields and growth potential are drawing increased attention. As performance evaluations for state-owned enterprises advance, supported by both robust payout capabilities and clear intentions, attractive dividend yields are anticipated to persist. Projected payout ratios for 2025 stand at 54.68% for PetroChina, 81% for China Petroleum & Chemical Corporation, and 44.87% for both CNOOC Limited and its listed entity. As profitability expands further, the dividend yields of these major oil producers are set to climb, positioning them favorably even within the high-dividend sector. The recommendation includes CNOOC Limited and its Hong Kong-listed arm, with PetroChina, its Hong Kong-listed PetroChina Co Ltd, and Xinjiang Xintai Natural Gas Co Ltd also identified as potential beneficiaries.
The crude oil market is currently caught in a tug-of-war between a robust US dollar exerting downward pressure on valuations and geopolitical tensions underpinning prices. The near-term trajectory of oil prices will largely hinge on developments in the Middle East. Should conflicts ease and prices retreat, a stronger dollar could deliver a double blow to oil values. Conversely, sustained tensions would reinforce the market's resilience due to supply rigidity, though elevated prices would increasingly constrain global demand.
Domestic economic fundamentals demonstrate considerable resilience and capacity for recovery. The manufacturing Purchasing Managers' Index averaged 49.57% in 2025, with monthly readings from January to June 2026 showing 49.3%, 49.0%, 50.4%, 50.3%, 50.0%, and 50.3% respectively. This PMI trajectory validates the economy's underlying strength. With post-holiday work resumption accelerating and policy support for stable growth taking effect, manufacturing sentiment has stabilized and begun to improve. However, close monitoring is required regarding the sustainability of domestic demand recovery, the tangible impact of consumption-boosting policies, and potential disruptions from overseas geopolitical conflicts on global inflation and sector profitability.
Earnings within the oil and gas extraction segment are on an upward trend. In 2025, total revenue for A-share listed companies in this sector reached RMB 409.709 billion, a year-on-year decline of 5.53%, while attributable net profit totaled RMB 123.768 billion, down 12.15%. In the first quarter of 2026, revenue climbed to RMB 118.768 billion, up 7.84% year-on-year, with attributable profit reaching RMB 39.545 billion, a growth of 5.79%.
The refining and trading sector has witnessed a notable earnings rebound. For 2025, total revenue across these A-share entities amounted to RMB 6.73825 trillion, down 6.46% year-on-year, while attributable profit was RMB 195.631 billion, a decrease of 12.14%. During the first quarter of 2026, despite revenue headwinds, the sector achieved substantial profit recovery through inventory gains, cost efficiencies, and an optimized product mix. Revenue for the quarter stood at RMB 1.696149 trillion, down 3.63% year-on-year, yet attributable net profit surged 22.22% to RMB 78.415 billion.
Oil prices experienced a downward consolidation throughout 2025, followed by a sharp escalation in the first half of 2026 amid intensifying geopolitical strife. The monthly average spot price for Brent crude in 2025 was USD 68.25 per barrel, a decline of 14.24% year-on-year. In the first quarter of 2026, the average rose to USD 76.48 per barrel, up 1.93% year-on-year. The second quarter saw a dramatic leap to USD 97.6 per barrel, representing a surge of 45.87% from the previous quarter's average.
Bolstered by upward revisions to demand growth forecasts, tangible supply constraints, and US Strategic Petroleum Reserve levels plunging to four-decade lows, oil prices are expected to remain elevated with significant volatility. The International Energy Agency, in its January 21 report, projected global oil demand growth of 930,000 barrels per day for 2026. Supply has tightened materially, with the US-Iran conflict causing a cliff-edge drop in exports—Gulf crude shipments, measured on a seven-day moving average, have fallen to roughly 36% of pre-conflict levels from nearly 80% in early July. Additionally, Red Sea shipping capacity for fully laden tankers has contracted by 22%, and Saudi Arabia's crude exports are down 2.4 million barrels per day year-on-year. OPEC+'s nominal output increases are struggling to translate into actual available supply due to disrupted shipping lanes, while unified production discipline weakens.
Global inventory drawdowns are accelerating alongside the sharp decline in US SPR holdings. By December 2026, oil inventories across OECD member countries are projected to fall below 2.3 billion barrels, approaching lows not seen since 2003. As of August 11, the US SPR has dipped below approximately 300 million barrels, marking a 43-year low since 1983. The medium-term outlook for crude remains anchored to Middle East developments and the fundamental supply-demand balance. On one hand, the full restoration of regional production and refining capacity will require time, and with global inventories persistently declining, the downside for prices appears limited, providing solid support at higher levels. On the other hand, subsequent inventory replenishment efforts are likely to drive prices upward, keeping the oil price center in a state of high-level fluctuation.
With oil prices holding firm amid volatility, the revenue and profitability of A-share oil and gas extraction and refining & trading companies remain closely correlated with crude price movements. In 2025, the average Brent spot price fell 14.24% year-on-year to USD 68.25 per barrel, with extraction sector revenues down 5.53% and refining & trading revenues down 6.46%. In Q1 2026, as Brent averaged USD 76.48 per barrel (up 1.93%), extraction revenues grew 7.84% year-on-year. The refining and trading segment, impacted by geopolitical factors, leveraged inventory positions and enhanced product value to expand profit margins, achieving a 22.22% surge in attributable net profit to RMB 78.415 billion.
Risk warnings: geopolitical risks; risks of significant energy price volatility; risks of demand falling short of expectations.
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