Historic two consecutive limit-ups! Premium exceeds 20%, turnover rate doubles. Is a new round of petrochemical cycle approaching?

Geopolitical conflicts push up oil prices, with stocks and ETFs becoming the best “carriers.”

On March 2nd, the “Big Three” oil companies hit their daily limit-ups for the first time, and on March 3rd, amid a sharp market decline, all three stocks again hit their daily limit-ups simultaneously. Related theme ETFs also closed in the green, with multiple oil and gas ETFs hitting their daily limit-ups, including the S&P Oil & Gas ETF and others limited by QDII quotas, which became areas of premium “disaster.”

Some public funds believe that the rare surge in oil prices is caused by multiple factors such as “geopolitical catalysts + supply and demand improvements + supply clearing,” and that this round of price increases is not short-term speculation, potentially marking the start of a new cycle in petrochemical industries.

“Big Three” Oil Companies Hit Limit-Up for Two Consecutive Days

Recently, tensions between the US and Iran have escalated, with market concerns about the safety of shipping through the Strait of Hormuz and potential disruptions to oil supply rising sharply. Brent crude oil has surged rapidly since mid-February, with geopolitical risk premiums directly pushing up oil prices and shipping costs.

In addition to oil stocks, oil services and oil equipment sectors have also strengthened, with Intercontinental Oil & Gas hitting the daily limit four times in six days, Shandong Molyun, Zhunyou Co., Seazen Gas, CNOOC Engineering, and CNOOC Development hitting two consecutive limit-ups.

In terms of ETFs, many oil and gas ETFs closed at their daily limit, with huge trading volumes. For example, the S&P Oil & Gas ETF by Jiashi, the Oil & Gas ETF by Yin Hua, the Petroleum ETF by Fuguo, and the Oil & Natural Gas ETF all hit their daily limit-ups, with QDII funds limited by quotas becoming the “hard-hit” areas of premium. The Fuguo Fund’s S&P Oil & Gas ETF had a premium rate as high as 20.76%. To stabilize market sentiment, this fund was suspended from trading from market open until 10:30 on March 3rd, but after resuming, it was still driven sharply to the limit-up.

Additionally, as of March 3rd, the Jiashi S&P Oil & Gas ETF also had a 16.36% premium. The company announced after hours that the Jiashi S&P Oil & Gas ETF was experiencing a significant premium, and investors should be cautious of the risk of price correction, avoiding major losses caused by buying at high premiums. The fund will be suspended from trading from market open on March 4th until 10:30.

The chase for funds is also reflected in the high turnover rates of ETF funds, with the Jiashi S&P Oil & Gas ETF having a daily turnover rate of 167.89%. The Fuguo Petroleum ETF, Huatai-PineBridge Oil & Gas ETF, Yin Hua Oil & Gas ETF, and other funds also exceeded 100% turnover.

Multiple Factors at Play

Morgan Stanley Fund Manager Shen Jing stated that the escalation of military conflict between the US and Iran has exceeded previous market expectations, significantly increasing global oil supply risks. In the short term, the core variables affecting oil prices are the recovery of navigation through the Strait of Hormuz and the duration of the conflict, as the Strait accounts for about 20% of global oil and natural gas transportation.

China Asset Management believes that this petrochemical rally is not just speculative hype but is supported by a “geopolitical catalyst + supply and demand improvement + supply clearing” threefold logic: 1. The US-Iran situation brings clear supply risk premiums, lifting oil price bottoms and reducing volatility, benefiting upstream profitability; 2. OPEC+ continues to control production, keeping global oil inventories low and prices supported; 3. Exploration and extraction companies’ cash flows are recovering, with high dividends and high elasticity attracting renewed investor attention.

The upstream recovery is strongly propagating along the industry chain. Oil service orders are full, refining margins are recovering, chemical prices are stabilizing, and the industry’s “involution” competition that troubled the sector over the past two years has eased significantly, entering a profit recovery phase.

So, what impact does this rare surge in oil prices have on the economy? Paul Kalogirou, Head of Portfolio Management at Manulife Investment, believes that geopolitical risks often trigger market fluctuations in phases, but their overall long-term impact is usually limited. Oil has always been a key focus during geopolitical escalations, especially when tensions originate in the Middle East.

From an economic perspective, Kalogirou notes that rising oil prices may pose headwinds to various sectors, although the impact has diminished over time. Higher oil prices increase consumer spending costs, especially affecting low-income households, as their fuel expenses constitute a larger share of total consumption. However, thanks to technological innovation and energy transition trends, the economy’s dependence on oil has significantly decreased in recent years.

“Another factor to consider is that rising oil prices could intensify inflationary pressures, potentially leading to tighter monetary policies. In recent years, inflation has eased partly due to lower energy prices, but sustained increases in oil and gas prices could slow further inflation decline. Overall, the direct economic impact of rising oil prices is relatively manageable, but increased geopolitical uncertainty may dampen market sentiment. It’s worth noting that consumer confidence is already relatively low, yet market sentiment remains relatively strong based on valuation levels and stock market leadership patterns,” Kalogirou said.

Impact on Other Safe-Haven Assets

Besides oil, safe-haven assets like gold and silver, as well as chemical cycle stocks, experienced sharp declines on March 3rd. So, what is the impact of this geopolitical event on these assets?

Shen Jing believes that since the escalation of Middle East tensions, precious metals like gold have benefited significantly as safe-haven assets, with COMEX gold prices surpassing $5,300 per ounce. In the short term, geopolitical uncertainties are high, prompting investors to withdraw from risk assets and shift into gold. There are concerns that a sharp rise in oil prices could propagate through the global supply chain, pushing up inflation, and gold is viewed as the best hedge against inflation. From a medium- to long-term perspective, US deficits and debt issues undermine confidence in the dollar, and central banks’ continued gold purchases support prices that are difficult to fall sharply.

China Asset Management believes that with the acceleration of domestic resumption of work and production, domestic demand and exports are improving simultaneously, and demand for chemicals is genuinely warming. The industry logic is evolving from “relying on unilateral oil price increases” to “profit recovery and structural optimization”; new capacity peaks have passed, supply structure continues to improve; leading companies’ cost advantages are expanding, and industry concentration is rising; high-end chemicals and new materials are opening long-term growth space.

China Asset Management states that the current logic for petrochemical markets is very clear: geopolitical uplift of oil price centers + supply clearing and improvement + demand recovery opening space.

“It’s not short-term speculation but a delayed value return. From excessive downturn to reasonable prosperity, from disorderly competition to leading beneficiaries. When supply, demand, oil prices, and policies move in the same direction, petrochemicals are at the start of a new cycle of prosperity,” they said.

(Article source: Securities Times)