UBS has released a research report revising its outlook for crude oil prices and the profitability of China's major state-owned energy companies.
The bank has lowered its average Brent crude price forecasts for 2026 and 2027 to $84 and $75 per barrel, down from previous estimates of $93 and $85, respectively. This adjustment reflects the potential normalization of crude supply transiting through the Strait of Hormuz. Recent price action saw Brent fall to around $70 per barrel, a decline exceeding UBS's earlier expectations. However, the report notes that risks to supply via the Strait persist, as geopolitical tensions in the region are not fully resolved. UBS anticipates a price recovery, forecasting Brent to rebound to $80 per barrel in the second half of 2026.
Since the beginning of the second quarter of 2026, persistently high crude prices, along with elevated transportation and insurance costs, have presented significant challenges for Chinese oil majors in their refining operations. Key pressures include: 1) a drop in capacity utilization at state-owned refineries from 81% in early March to 68%; 2) an expected significant decline in gasoline and diesel sales for Q2 2026 due to demand destruction from high prices; and 3) squeezed refining margins from rising crude and freight costs.
Looking ahead to the third quarter, refineries may face inventory losses following the recent drop in crude oil prices. Over the longer term, as crude prices stabilize and growth in China's refining and chemical capacity slows, the bank expects the downstream operations of these oil giants to enter an upward cycle.
In light of the revised oil price forecasts and a cautious near-term outlook for the refining sector, UBS has cut its profit forecasts and target prices for China's three major oil companies, while maintaining "Buy" ratings on the stocks.
Specifically, UBS reduced its adjusted net profit forecast for PetroChina Co Ltd (HKG: 00857) by 7% to RMB 190.8 billion for 2026. The bank also lowered its H-share target price for the company by 10%, from HK$14.2 to HK$12.8.
For CNOOC Ltd (HKG: 00883), the adjusted net profit forecast was cut by 6% to RMB 168.7 billion. Its H-share target price was reduced by 11%, from HK$37.8 to HK$33.6.
The forecast for China Petroleum & Chemical Corporation (HKG: 00386), or Sinopec, saw the most significant adjustment, with its adjusted net profit forecast lowered by 13% to RMB 39.4 billion. Its H-share target price was trimmed by 10%, from HK$7.1 to HK$6.4.
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