Shenwan Hongyuan Group Co., Ltd. has released a research report indicating that oil prices possess significant upward flexibility. Against the backdrop of expectations for sustained high oil prices through 2026, oil company earnings are projected to benefit directly. The improving oil price environment is anticipated to spur increased investment in oil and gas exploration and development. In the United States, the ethane supply and demand situation is expected to remain loose, creating substantial potential for energy arbitrage as oil prices rise. The overseas energy crisis is accelerating the phase-out of outdated production capacity, providing an opportunity for large-scale domestic enterprises with stable supply chains to gain a significant competitive edge. In the downstream polyester segment, supply and demand are gradually tightening, with expectations for an improvement in market conditions.

The key viewpoints from Shenwan Hongyuan are outlined as follows:

**Oil and Gas Exploration:** Geopolitical conflicts have intensified, leading to a rapid surge in oil prices. The forecast for Brent crude oil prices in 2026 is a range of $80 to $150 per barrel. On the supply side, geopolitical tensions have resulted in restrictions on the Strait of Hormuz, significantly limiting exports of approximately 20 million barrels per day of crude oil and related products. Although the International Energy Agency has released 400 million barrels from strategic reserves, and countries like Saudi Arabia and the UAE are diverting some crude exports via pipelines, a substantial supply gap remains, which continues to draw down global crude inventories. On the demand side, while global GDP growth is projected at around 3.1% for 2026, leading to a moderation in crude demand growth, subsequent demand for strategic reserves is expected to increase. The firm concludes that a supply-demand deficit for crude oil will emerge in 2026, estimated at approximately 7.4 million barrels per day assuming stable demand, which will significantly elevate the average oil price compared to 2025.

**Refining and Chemical Processing:** Rising cost pressures are accelerating the elimination of overseas production capacity. Beyond its impact on crude oil, geopolitical instability is expected to significantly affect global refinery operations. A shortage in crude oil transportation has substantially increased costs for refineries, disproportionately impacting smaller, less efficient operations. Furthermore, the stability of raw material supply chains in some regions faces considerable challenges, likely leading to more frequent refinery maintenance shutdowns and reduced operating rates. Additionally, the Strait of Hormuz is a critical transit route for products like LPG and naphtha, meaning short-process refineries and PDH (Propane Dehydrogenation) units may also encounter raw material shortages. With new refining capacity additions in China largely complete, the cap of 1 billion tons on refining capacity sets the stage for a future recovery in market conditions. The current overseas energy shock positions domestic refineries with stable or diversified procurement channels to gain a significant advantage globally. For the light hydrocarbon sector, rising crude oil prices present clear opportunities for energy arbitrage, leading to direct benefits for profitability.

**Polyester:** A slowdown in capital expenditure growth points towards rebalancing under high oil prices. Future new investment in the polyester industry chain is limited, suggesting a potential rebalancing in 2026 amidst high oil prices. The fundamental logic for polyester lies in supply and demand dynamics. With major capital expenditure cycles concluded and stable downstream demand, operating rates are expected to continue their year-on-year recovery into 2026. For PTA (Purified Terephthalic Acid), the period of large-scale capacity additions has ended, with no significant new capacity expected in 2026. Coupled with coordinated production cuts by leading players, there is considerable room for an improvement in market conditions. Capacity growth for polyester filament is projected to remain at 2-3%, with expectations for better downstream demand leading to higher operating rates. The cycle of new capacity additions for PET bottle chips is concluding, with limited new capacity planned for 2026, and industry-wide coordination efforts are proving effective.

Risk warnings include the potential for concentrated industry capacity additions and risks associated with a global economic downturn and weakening demand.