On October 10, Huayuan Securities released a research report on the petroleum and petrochemical industry, stating that oil prices rose sharply in Q2, leading to a significant increase in industry profitability.
Petrochemical Index Performance: In the first half of 2026, the petroleum and petrochemical index rose initially before falling, underperforming the broader market overall. The main reasons for this underperformance were: technology-related sectors performed well in 1H26, while oil prices fluctuated significantly during the first half, causing substantial disruption to the valuation levels of the petroleum and petrochemical industry. Under such sharp oil price volatility, the market may have harbored certain concerns about the earnings stability of petroleum and petrochemical companies.
In the first half of 2026, the profitability of the petroleum and petrochemical industry increased markedly. The primary reasons were: 1) Against the backdrop of rising oil prices, petrochemical product prices increased, driving earnings growth for oil and gas exploration companies as well as coal-based and gas-based chemical companies; 2) Midstream enterprises held certain raw material inventories, and against the backdrop of rising oil prices, their inventory gains were substantial; 3) The downstream polyester segment saw improved profitability driven by coordinated production cuts across the industry.
Oil and Gas Exploration Segment: Rising oil prices drove sector profit growth. Since the beginning of the year, under the influence of the US-Iran conflict, the Brent crude settlement price once rose to nearly $120 per barrel. Thereafter, as geopolitical factors weakened, oil prices quickly retreated. By the end of June, the Brent crude settlement price had fallen to above $70 per barrel. Amid high-level oil price fluctuations, upstream oil and gas exploration companies benefited from high oil prices, with relatively large earnings improvements.
Oilfield Services Segment: Global offshore oil and gas capital expenditure increased, and the oilfield services segment may have relatively large future earnings elasticity. Offshore oil and gas investment performed strongly in 2026. Westwood estimates that offshore oilfield development capital expenditure in 1H26 was approximately $66.4 billion, a year-on-year increase of more than 200%. In the second half, offshore oil and gas investment will be even stronger, potentially reaching $70.5 billion in offshore oil and gas field development capital expenditure. Oilfield services companies delivered solid results in Q2, and with global capital expenditure rising in the future, the earnings elasticity for oilfield services companies may be relatively large.
Refining and Chemicals Segment: Q2 demand showed negative feedback, but inventory gains may have driven a significant increase in net profits for refining and chemical enterprises. In 1H26, against the backdrop of rising oil prices, refining margins fell sharply, once reaching a historical low in May. Thereafter, as oil prices retreated, refining margins gradually recovered. Driven by inventory gains, refining and chemical enterprises saw a significant increase in net profits in Q2.
Olefins Segment: Profitability of alternative routes improved significantly. Rising oil prices and shrinking supply from overseas refineries drove olefin prices higher, leading to a widening price spread for olefins produced via alternative routes. Coal-based and gas-based chemical enterprises saw improved profitability.
Polyester Segment: Under coordinated production cuts, polyester profitability improved significantly in Q2. Amid weak demand and high cost pressures, leading polyester filament enterprises may have chosen coordinated production cuts to boost profits. Driven by industry-wide coordinated production cuts, polyester enterprises saw a significant increase in profitability.