A combination of geopolitical tensions, logistical bottlenecks, and supply constraints has propelled Shanghai International Energy Exchange (INE) crude oil futures to a dramatic rally. On September 14, the SC crude oil 2610 contract soared, hitting an intraday high with a gain of over 11% before closing at 901.3 yuan per barrel.
According to Han Jingyuan, Vice President of JLC Network Technology, the rapid ascent of domestic oil prices is driven by multiple converging factors: restricted passage through the Strait of Hormuz, a failure in Saudi Arabia's oil pipeline, and OPEC's production cuts. These supply-side issues are compounded by low global crude inventory levels and a significant spike in shipping costs, collectively fueling the upward price movement.
Han emphasized that the core catalyst for this price surge is the worsening geopolitical landscape in the Middle East. Concerns over potential supply disruptions have intensified following the pipeline outage in Saudi Arabia and the stagnation of ceasefire negotiations in Yemen. Unlike international benchmarks, the SC crude oil futures contract is a cost-insurance-freight (CIF) contract priced in yuan, meaning sea freight expenses are directly incorporated into the price. Notably, the increase in shipping costs during this cycle has outstripped the rise in oil prices themselves. Monitoring data indicates that Very Large Crude Carrier (VLCC) rates on the Middle East-China route have skyrocketed to $905,000 per day, a staggering 8.7 times the normal baseline, reflecting acute vessel shortages and robust chartering demand. Furthermore, with the SC contract approaching its rollover period, thinning open interest has amplified price volatility, ultimately resulting in a stronger performance for SC crude relative to international benchmarks.
Han argued that until clear signals of improvement emerge regarding navigation through the Strait of Hormuz and the repair of Saudi Arabia's energy infrastructure, the supply gap is unlikely to be quickly closed through market self-correction. In the meantime, the rising crude prices are transmitting significant operational pressure to China's domestic refining and petrochemical sectors. Jia Yeping, an analyst at Zheshang Futures, pointed out that the industry is facing a "scissors differential" pattern, characterized by rising feedstock costs and weak product pricing power. Even though major state-owned refineries are willing to increase processing runs, the overall industry operating rates remain below the levels seen in previous years during the same period.
Jia further noted that despite the cost pressures, the chemical sector is not entirely weak. Compared to the market environment from March to April, downstream chemical inventories are currently at low levels, and rigid demand can provide some profit support to the intermediate processing chain. Looking ahead, the naphtha cracking margin in Asia holds the potential for increases, and the chemical market is likely to maintain a pattern of cost-supported pricing with divergent trends across different products.
Yan Jiantao, Chief Economist at Jiecheng Energy, offered insights into the divergence between spot and futures prices from both trading and fundamental perspectives. He explained that spot prices, driven by tight physical supply, took the lead in rising during this cycle, while futures prices were merely playing catch-up. He highlighted that in August, when Brent crude was trading around $87 per barrel, spot prices had already climbed to $120 per barrel, whereas SC crude oil futures were languishing between 560 and 630 yuan per barrel. Therefore, the current surge in SC futures is essentially a process of price convergence, with futures aligning towards the higher spot levels. Yan cautioned that weak domestic end-user demand does not support a sustained unilateral rally in oil prices. He identified global crude inventory levels as a key risk metric to watch; should inventories fall to the critical threshold of 6.5 billion barrels, it could unlock further upside for oil prices. However, he also noted that domestic inventories possess a certain buffer capacity, which can partially offset the impact of volatility originating from overseas markets.
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