STOCKS | CLSA Expects Higher Oil Prices to Support Chinese Oil Majors’ Earnings

Oil prices have fallen back to about $85 a barrel as tensions in the Middle East eased, but CLSA said supply constraints could keep prices elevated.

According to Jin10, CLSA said the market broadly expects oil to return to around $70 a barrel, but it forecast that global oil supply would not recover to pre-conflict levels over the next six to 12 months due to damage to production facilities and infrastructure bottlenecks.

CLSA forecast oil prices would stay above $80 a barrel in the second half of the year, compared with an average of $94 a barrel in the first half of this year. It said Chinese state-linked oil stocks were expected to benefit, delivering their best earnings and cash flow performance in recent years.

The bank forecast that second-quarter profit at PetroChina (00857.HK) and CNOOC (00883.HK) would rise about 50% year on year. It added that, amid market volatility, PetroChina and CNOOC had relatively defensive characteristics due to their fundamentals and a 7% dividend yield.

CLSA maintained an “outperform” rating on the three major oil companies, ranking PetroChina first, followed by CNOOC and then Sinopec (00386.HK). It set a target price of HK$12 for PetroChina, saying it was positioned to benefit in a balanced way from higher oil and natural gas prices. For CNOOC, it set a target price of HK$36, noting that removal from a U.S.-related list could trigger a new re-rating. For Sinopec, CLSA set a target price of HK$4.9 and said its second-quarter earnings could face challenges.