According to the financial news app, Intelligent Finance, Guolian Securities has released a research report stating that OPEC member countries have reached a new production agreement at the 37th ministerial meeting. They will extend their voluntary production reduction policy until the end of 2025, gradually canceling voluntary additional production cuts from September 2024. It is estimated that after the implementation of this production agreement, the oil market will show an even tighter supply-demand fundamental in the second half of 2024, with an expected supply gap of nearly 0.5 million barrels per day by the end of 2024. Expected oil prices will continue to maintain a high level due to fundamental support.

Petroleum extraction: Profitability remains strong due to high oil prices.

Companies with large oil and gas upstream businesses have benefited from the continuous and strong performance of their upstream businesses due to high oil prices. As of the first quarter of 2024, the petroleum extraction sector achieved a total operating income of 937 billion yuan, a year-on-year increase of 9.83%, and a net income attributable to the parent of 87.1 billion yuan, a year-on-year increase of 9.40%. Guolian Securities believes that due to the impact of the oil and gas upstream investment cycle, oil prices may continue to maintain a high level in the next few years. Coupled with the continuous strengthening of the capabilities of the three major state-owned enterprises, such as "Three Barrels of Oil", to resist oil price fluctuations, future profitability is expected to remain strong.

Oil service projects: Capital spending may be bullish for performance.

Global oil and gas upstream total investment has resumed high growth since 2022. According to the IEA World Energy Investment Outlook report, global oil and gas upstream apparent investment is expected to increase by 7% to $570 billion in 2024, further increasing from 2023. Considering the impact of upstream inflation, effective capital expenditures are most likely to be lower than 7%. If effective capital expenditures continue to increase positively after deducting inflation, the oil service sector is still worth paying attention to.

Other petrochemical companies that may end their expansion period may determine the supply and demand direction based on their operating rates.

Guolian Securities believes that it is worth paying attention to whether polyester filament and some leading refining companies with large oil and gas upstream businesses will undergo significant changes in their business operations due to an expansion period that may end. On the one hand, through analysis, it was found that there are no large-scale capacity expansion plans for polyester filament until 2023, and manufacturers are gradually being affected by the tightening of various production factor indicators. If leading companies can control their operating rates reasonably and avoid oversupply caused by high operating rates in the first half of 2024, the polyester filament sector is worth continued attention.

Investment recommendation: It is recommended to pay attention to China National Offshore Oil (600938.SH) and leading oil service enterprise China Oilfield Services (601808.SH), as well as representative companies in the industry with a focus on polyester filament such as Tongkun Group (601233.SH) and Xinfengming (603225.SH) which have core assets.

Risk warning: Risks of global macroeconomic downturn; mismatches brought about by global industrial chain rebalancing; risks of sharp fluctuations in commodity prices; risks of project progress and technological breakthroughs falling short of expectations; risks of international trade policies; risks of climate change exceeding expectations.