Analysts at Everbright Securities have issued a research report indicating that the Energy Information Administration (EIA) forecasts OECD inventory days will drop to 50 by the end of 2026, reaching the lowest level since 2003. This low inventory significantly weakens the crude oil market's buffer capacity, increasing the likelihood of sustained high and volatile international oil prices. Any additional supply disruptions could trigger sharp fluctuations in crude prices. The US-Iran conflict has severely disrupted the transportation of key materials like Middle Eastern crude oil, naphtha, and liquefied natural gas, posing a substantial threat to China's energy and petrochemical feedstock supply. The proprietary resources of China's "big three" state-owned oil companies are fundamental to the nation's energy security, with enhancing domestic supply capacity remaining a strategic pillar and reliable pathway for safeguarding this security.
Global Crude Inventories at Lows, Sustained High Price Volatility Expected
While significant progress was made in US-Iran talks this week, with statements from former President Trump, Iran's Foreign Minister, and Pakistan's Prime Minister suggesting a peace agreement is near, the global crude market still faces low-inventory risks. According to the IEA's May monthly report, global oil inventories fell by a cumulative 246 million barrels in March and April. Excluding inventories stranded on land and tankers in the Gulf region, the decline is even more pronounced. In its latest Short-Term Energy Outlook, the EIA predicts that, assuming the Strait of Hormuz opens in Q3 2026 and Gulf production cannot recover quickly, global oil inventories will shrink by 6.3 million barrels per day in Q2 2026 and by 7.6 million barrels per day in Q3 2026. By year-end 2026, OECD inventory days are projected to fall to 50, the lowest since 2003. This low inventory drastically erodes the market's cushion, raising the probability of high and volatile international oil prices and meaning any extra supply shock could provoke severe price swings.
Geopolitical Risks Intensify Global Energy Security Demands, Spotlight on Strategic Value of Top Oil Firms
The US-Iran conflict has severely hampered the transport of crucial materials such as Middle Eastern crude, naphtha, and LNG, creating a serious threat to China's energy and petrochemical feedstock supply. The IEA noted in its World Energy Investment 2026 report that the ongoing energy crisis triggered by the effective closure of the Strait of Hormuz is altering risk perceptions. The far-reaching impacts of the Middle East conflict are prompting nations and companies to rethink energy investment strategies to address growing concerns over energy security and trade flow reliability. The proprietary resources of China's "big three" oil companies form the bedrock of the nation's energy security, with strengthening domestic supply capacity being the enduring strategic support and reliable method for ensuring this security. Furthermore, as vital state-owned backbone enterprises and globally operating multinationals, these three oil giants actively lead the "going global" initiative. They deeply engage in global energy governance, continuously optimize asset structures, business mixes, and regional layouts, enhance energy resource utilization capabilities, improve energy transportation channel development, provide crucial support for securing national energy supply and accelerating the energy transition, and contribute positively to global energy development.
Top Oil Giants Boost Reserves and Output; Subsidiaries Poised to Benefit
According to IHS Markit projections, global upstream exploration and development expenditure is expected to grow at a compound annual growth rate of 5.5% over the next five years. Offshore exploration and development investment continues its upward trend, with hotspots concentrated in regions like South America, Asia-Pacific, and Africa. During China's 15th Five-Year Plan period, domestic oil and gas exploration and development investment is anticipated to achieve steady growth. In 2025, the oil and gas equivalent output of PetroChina, Sinopec, and CNOOC increased by 2.5%, 1.9%, and 6.9% year-on-year, respectively. The three major oil companies will continue to maintain high capital expenditures, with their combined planned upstream capital expenditure for 2026 up 4% year-on-year. They are intensifying efforts to increase reserves and production, with PetroChina, Sinopec, and CNOOC planning to grow their 2026 oil and gas equivalent output by 0.6%, 0.2%, and 1.6%, respectively. Efforts to boost offshore oil and gas reserves and production are continuously strengthening, with rigid investment demand creating a solid market foundation for offshore oilfield services. Oilfield service subsidiaries of the three major oil companies are well-positioned to benefit substantially. Additionally, these companies are actively responding to the Belt and Road Initiative, gradually deepening their overseas business layouts. Their engineering subsidiaries, leveraging the platform advantages of their parent companies to seize new overseas opportunities, are expected to achieve sustained breakthroughs in international business development and continuous improvements in profitability.
Risk analysis includes upstream capital expenditure growth falling short of expectations and significant volatility in crude oil and natural gas prices.
Comments