Following a series of airstrikes and a subsequent ceasefire, crude oil prices experienced a significant rally before sharply correcting. Market sentiment is now heavily influenced by every statement from former President Trump, with traders joking that oil prices are now entirely at his mercy. Since early July, the conflict between the US and Iran has escalated again, with the US military launching 13 consecutive days of airstrikes on Iran. This drove a sustained surge in crude oil prices, with Brent crude briefly breaking through $100 per barrel. Goldman Sachs even projected prices could reach $120 per barrel in the fourth quarter.
However, on July 25, possibly due to concerns over ammunition reserves, the US halted its military strikes. Oil prices subsequently fell in response, though the month of July still recorded a gain of over 15%. The surge in crude oil prices also lifted the prices of major chemical commodities. In July, products like methanol, styrene, and ethylene glycol all saw increases of more than 10%. In the stock market, the petrochemical sector performed strongly, with SINOPEC CORP (HKEx: 00386) rising over 15% and CNOOC (HKEx: 00883) also posting significant gains. On July 27, due to the ceasefire, petrochemical products suffered a sharp decline, leading to a substantial pullback in related stock market targets.
The current question revolves around the duration of the ceasefire between the US and Iran. Given Trump's style, it is uncertain whether this is a tactical feint. Moreover, the deep-seated hostility between the two nations makes it difficult to achieve a de-escalation through renewed negotiations. Adding to the complexity, the Houthi group has announced a blockade of the Red Sea's Bab el-Mandeb Strait, targeting Saudi vessels, which further exacerbates regional tensions. A Goldman Sachs research report indicates that if the disruption to shipping through the Strait of Hormuz persists, Brent crude oil prices could rise above $120 per barrel in the fourth quarter. If the ceasefire proves to be fleeting and conflict resumes, crude oil prices are likely to continue their upward surge, and the petrochemical sector will continue to benefit.
Dual Crisis in the Bab el-Mandeb and Hormuz Straits: Supply Contraction and Low Inventories Drive Price Increases
Reviewing the US-Iran conflict this year, it has followed a clear event-driven pattern: from US-Israeli airstrikes on Iran in February, a ceasefire agreement in April, negotiations in June, and renewed attacks in July. Escalation of the conflict pushes prices up, while ceasefires and de-escalation lead to range-bound trading. The current unilateral US ceasefire does not possess the characteristics of a genuine de-escalation, as Iran has stated it has not requested a resumption of talks with the US. This suggests that the conflict could still escalate further.
In reality, new variables are influencing crude oil prices. Beyond the US-Iran conflict, the tensions between the Houthi group and Saudi Arabia have become a key factor. The Houthis have imposed a maritime blockade on Saudi Arabia, threatening to close the Bab el-Mandeb Strait. With the Strait of Hormuz facing disruption, the Bab el-Mandeb Strait becomes a critical alternative route. The Yanbu port, which handles nearly 4 million barrels per day of export capacity, is now under threat from the Houthis. Saudi Arabia is forced to take alternative, longer routes, which will reduce transportation efficiency and significantly increase costs. This dual crisis of the "Bab el-Mandeb Strait + Strait of Hormuz" could lead to another large-scale contraction in supply.
Looking at the two rounds of supply shocks, the first was confined to the Strait of Hormuz. During the period of de-escalation, strategic reserves were released in a concentrated manner, and existing inventories were used to buy time for adjustment. This kept oil prices trading in a high range for a considerable period. However, the second round is different. It involves a blockade of two straits, preventing the release of production capacity, and global inventories are nearing depletion. Data shows that for the week of July 24, 2026, global in-transit plus floating storage crude oil inventories were 1.342 billion barrels, a decrease of 48.055 million barrels from the previous week. In-transit inventories were 1.238 billion barrels, down 53 million barrels week-over-week, indicating a continuous decline in petroleum reserves. Taking the US, the largest reserve holder, as an example, its Strategic Petroleum Reserve has fallen to 307.7 million barrels, the lowest level since 1983. Therefore, compared to the first round, the current supply shock is having a much larger impact.
On the production capacity front, core Middle Eastern production curtailments decreased in June, but with the escalation of conflict in July, they are expected to rise sharply, especially from major oil producer Saudi Arabia. Russia, as one of the alternative oil suppliers, is also facing issues. Due to the Russia-Ukraine conflict, Ukrainian drones have continued to attack Russian refineries in recent months, damaging 19 refineries covering 4.9 million barrels per day of processing capacity, representing 70% of Russia's total refining capacity. To ensure domestic supply, Russia has imposed an export ban on refined oil products, further tightening supply. It is noteworthy that after the US's repeated violations of agreements, Iran's core advantage over the US is its greater economic resilience. Iran is fully aware that controlling the Strait of Hormuz is the most effective countermeasure against the US, and it is unlikely to compromise on this issue.
Based on these factors, there is potential for further increases in crude oil prices. According to Goldman Sachs, if prices reach $120 per barrel in the fourth quarter, the petrochemical sector could also see significantly higher valuations.
China's Top Three Oil Giants and Overflow Leaders to Benefit First; Focus on US-Iran Conflict Persistence
With the expectation of sustained oil price increases, China's three major oil companies stand to benefit first. SINOPEC CORP (HKEx: 00386), as an industry leader, produced 131 million barrels of oil equivalent in Q1 2026, including 63 million barrels of domestic crude oil. CNOOC (HKEx: 00883) achieved a net production of 205 million barrels of oil equivalent, with 140 million barrels of oil equivalent from China. The production and sales volumes of the three oil giants have remained relatively stable. From a performance perspective, CNOOC, with a smaller scale, shows greater earnings elasticity. SINOPEC CORP has seen a single-digit decline in revenue for three consecutive years, though its profit margin is higher. In Q1 2026, SINOPEC CORP reported a net profit attributable to shareholders of 17.006 billion yuan, with a net profit margin of 2.4%. CNOOC’s performance fluctuates, with Q1 revenue growing 8.63% and net profit attributable to shareholders reaching 39.144 billion yuan, an increase of 7.06%. Its net profit margin is a high 33.7%, far exceeding the other two.
Everbright Securities published a research report stating that if the US-Iran conflict continues, the crude oil market's regulatory mechanisms may fail, leading to greater market volatility. The reserves of the three oil giants are the foundation of China's energy security and are expected to benefit fully from rising oil prices. Additionally, the three companies maintain a stable dividend payout ratio, making them relatively scarce as long-term high-dividend stocks, with significant value in high-dividend allocation. However, it is important to note that while supply contraction due to conflict can lead to demand contraction, smaller companies may suffer. One such example is CHINA RISUN GP (HKEx: 01907), a domestic private enterprise with its own oil fields. Its drilling engineering services and crude oil and derivative revenues account for over 90% of its total. In Q1, it produced 235,600 tons of crude oil, but crude oil and derivative sales volume fell 19.48%. It did not benefit from the price increase, with total revenue declining 18.22% and net profit attributable to shareholders falling 86.22%. The company expects a further decline of 64.68% to 70.46% in the first half of the year.
Furthermore, rising crude oil prices are driving a broad increase in chemical product lines, boosting the performance of related targets. CHINA RISUN GP (HKEx: 01907), a global leader in integrated coking, operates 19 coke production lines as of 2025, with an operating capacity of 23.7 million tons per year, and 56 chemical production lines, with an operating capacity of 6.2 million tons per year. Coke prices have been steadily rising for three consecutive quarters, and chemical products benefit from high oil price elasticity. The company's high business growth in 2026 has high certainty. Additionally, CHINA RISUN GP is actively expanding its new energy business, forming an industrial structure driven by three pillars.
In summary, the re-escalation of the US-Iran conflict, combined with the loss of credibility of the Trump administration in Iran, makes a negotiated de-escalation less likely. However, the duration of the current ceasefire remains uncertain, increasing oil price volatility and causing a continuous correction. Nonetheless, new key variables have emerged in this conflict. The dual crisis of the "Bab el-Mandeb Strait + Strait of Hormuz" will lead to another large-scale contraction in crude oil supply, driving prices higher. If the conflict continues to escalate, the petrochemical sector will once again present investment opportunities. From a valuation perspective, among the directly benefiting three oil giants, the price-to-book (PB) ratios for SINOPEC CORP and CNOOC on the Hong Kong Stock Exchange are 0.55 times and 1.1 times, respectively. SINOPEC CORP has a relatively lower valuation. The indirectly benefiting leader, CHINA RISUN GP, has a PB ratio of 0.58 times, with a wider range of product categories, greater price and demand elasticity, and higher performance expectations. Investors should closely monitor the persistence of the US-Iran conflict.
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