China Merchants Securities released a research report stating that a long-standing market perception gap persists amid sustained growth in global energy demand and production capacity bottlenecks. The industry is shifting towards a synergy of value and growth, presenting favorable investment opportunities in the oilfield services industry chain. The report continues to emphasize multiple investment directions within the oilfield services sector against the backdrop of supply-demand mismatches: 1) Exploration equipment and drilling consumables, which are more sensitive to short-term oil price fluctuations. 2) Core subsea equipment. 3) The Floating Production Storage and Offloading (FPSO) vessel industrial chain. 4) Equipment suppliers benefiting from the rapid growth of natural gas business in the Middle East. The main views of China Merchants Securities are as follows:
Geopolitical volatility is accelerating fluctuations in the oil and gas industrial chain. The long-standing market perception gap persists due to continuous growth in global energy demand and production capacity bottlenecks. The industry is transitioning towards a resonance of value and growth, making investment opportunities in the oilfield services industrial chain attractive.
Geopolitical tensions are igniting the energy market, with rising oil prices catalyzing an upswing in the oilfield services sector's prosperity. Recent frequent geopolitical conflicts have directly increased crude oil risk premiums and, through ripple effects, reshaped global energy flow patterns. 1) Firstly, the ongoing instability in the Middle East and the Russia-Ukraine situation has intensified market concerns about supply disruptions. Oil prices are trending upwards around a higher volatility center, stimulating activity in upstream exploration and development within the oilfield services industry. In February 2026, influenced by rumors of potential US military action against Iran and the normalization of sanctions against Russia, WTI crude oil futures surged to $66.48 per barrel on February 20th; Brent crude also reached $71.76 per barrel at that time, hitting a near six-month high. 2) Secondly, affected by the geopolitical situation, the tanker market has also experienced turbulence. To avoid compliance requirements and geopolitical risks, there was an expansion of "shadow fleet" tankers in the first half of 2025. However, as sanctions became normalized, these non-compliant vessels were forced out of the market, leading to a significant supply contraction gap for compliant fleets and an upward trend in freight rates. On February 24th, the Baltic Dirty Tanker Index (BDTI) reached 1842 points, continuously setting new阶段性 highs.
Long-term Logic: Structural Supply-Demand Mismatches Accelerate. Beyond short-term geopolitical catalysts, a significant market perception gap regarding sustained global energy demand growth and existing production capacity bottlenecks is a more critical long-term growth driver for the oilfield services industry.
Demand Side (Extraction Segment): Traditional fuel oil demand is stabilizing or even declining amid the energy transition, but demand for chemical feedstocks shows strong growth resilience. Demand for basic chemical feedstocks like ethylene and naphtha, which are fundamental to plastics, chemical fibers, and synthetic materials, is closely linked to economic growth and consumption upgrades, maintaining a sustained growth trend.
Supply Side (Extraction Segment): The natural decline rate of global oil fields continues to increase; upstream investment remains constrained, slowing supply growth. The IEA previously estimated a 4% decline in global oil and gas investment in 2025; short investment cycles make US tight oil a market bellwether, with its 2025 expenditure expected to fall by 10%.
Supply Side (Transportation Segment): The supply structure in the tanker shipping segment is extremely fragile. The aging of Very Large Crude Carriers (VLCCs) is intensifying, while new vessel deliveries in 2024-2025 are at historically low levels. As shipyard capacity is occupied by container ship orders until after 2028, the capacity gap is difficult to close in the short term, further exacerbating tensions in the industrial chain.
Demand Side (Oilfield Services Equipment Segment): a. To counter the natural decline of aging global oil fields and rising exploration costs, demand for deepwater, deep-earth extraction, and enhanced oil recovery is increasing, requiring more and larger equipment. b. The natural gas downstream sector is entering a historic capacity expansion cycle. In 2024, LNG capacity under construction or approved for development accounted for 43% of operational capacity.
Supply Side (Oilfield Services Equipment Segment): The pace of recovery in capital expenditure and workforce size for international oilfield service companies is relatively slow. Measured by net fixed assets, Schlumberger's capacity is only at 50% of its 2014 peak level. Extended delivery cycles mean limited short-term supply elasticity for the industry.
Supply Side (Refining Segment): The global refined product supply chain exhibits high vulnerability. On one hand, the addition of new domestic capacity has slowed significantly due to strict policy controls; on the other hand, refineries in Europe and America have undergone significant rationalization since 2021, compounded by uncertainties in capacity due to the geopolitical situation, keeping global refinery crack spreads persistently high.
Demand Side (Refining Segment): Recovery in the aviation industry driving jet fuel demand and extensions of the chemical industry chain provide stable demand support for the refining segment.
Investment Recommendations: Continue to emphasize multiple investment directions within the oilfield services industry against the backdrop of supply-demand mismatches: 1) Stocks related to exploration equipment and drilling consumables, which are more sensitive to short-term oil prices: Potential Energy, Deshi Oil, Shandong Molong, etc. 2) Core subsea equipment suppliers: Shenkai Shares, Dweller, etc. 3) FPSO industrial chain: CIMC, Bomesc, etc. 4) Equipment suppliers benefiting from the rapid growth of Middle Eastern natural gas business: Jereh, Neway Valve, Zhongman Petroleum, Zhongtai Chemicals, etc.
Risk warnings include global upstream oil and gas capital expenditure falling short of expectations, international trade environment and geopolitical volatility, intensified industry competition leading to gross margin decline, and risks related to industrial chain supply and technological iteration.