Sustained gains in oil prices will likely benefit two of China’s petroleum giants, Goldman Sachs analysts said, following rising Middle East tensions. The Iran war has effectively halted shipping through the Strait of Hormuz over the past week. Typically, about 20% of global petroleum liquids flow through strait, primarily sending crude to Asian countries. The constraints and supply uncertainty sent futures for Brent crude soaring 28% last week , its biggest weekly gain since April 2020. U.S. crude notched its biggest weekly gain in the history of the futures contract, dating back to 1983. Brent , which settled Friday at $92.69 a barrel, could rise to $100 a barrel if flows through the Strait of Hormuz drop by 50% one month, and remain 10% lower for another 11 months, the Goldman Sachs Asia Pacific energy analysts said in a March 2 report. But the analysts said that even with Brent at $80 to $90 a barrel the full-year free cash flow of two Hong Kong-listed names, China National Offshore Oil Corporation (CNOOC) and PetroChina , could be boosted by more than 10%. Goldman rates both stocks a buy. As of midday March 2, the firm was pricing in an average Brent price of $70 a barrel. Both CNOOC and PetroChina shares hit 52-week highs on March 3, but gave up some gains heading into the end of the week. CNOOC has its roots in offshore oil exploration and production with foreign firms, while PetroChina has had a more domestic business that also includes refining and distribution. The companies are two of China’s three state-owned oil giants. The Goldman Sachs analysts said they didn’t have as favorable view on the third state-owned oil name, Sinopec. It is the world’s largest refiner and last year also became the largest chemicals producer . Shares also hit a 52-week high on March 3. “For Chinese refiners like Sinopec, given the domestic product ceiling calculation mechanism does not factor in increases in international freight rates or [official selling prices], we see the net impact as skewed to the negative side,” the Goldman analysts said. China is the world’s largest importer of crude, although the country relies on significant domestic coal production for total energy needs, while trying to diversify into renewables. In the wake of the Iran war, China has reportedly ordered the largest state oil refiners to suspend exports of diesel and gasoline amid worries that the ongoing conflict could disrupt easy access to energy. Crude oil imports transported via the Strait of Hormuz account for 6.6% of China’s overall energy consumption, according to Nomura’s Chief China Economist Ting Lu. Natural gas imports via the strait make up 0.6% of China’s overall energy needs, he said. For U.S. investors, the Treasury Department has restricted purchases of CNOOC shares since 2021 . However, PetroChina shares do not face the same rules. Overall valuations of Asia upstream names — PetroChina, CNOOC, India’s ONGC and Thailand’s PTTEP — “remain relatively discounted vs. [developed market] peers even after the recent rally,” the Goldman analysts said, referring to the performance of rivals such as ConocoPhillips , BP , Chevron and Exxon Mobil .
