According to a recent research report from Orient Securities, the current high prosperity in refined oil products, particularly diesel, is primarily driven by supply disruptions stemming from conflicts in the Middle East and the Russia-Ukraine war. China and the Middle East, which were originally the main sources of incremental supply, are expected to see their future growth rates decline further due to policy adjustments and geopolitical influences. Consequently, the brokerage firm forecasts that global refining capacity will remain persistently tight.
Orient Securities believes that domestic refining and petrochemical enterprises, buoyed by the high prosperity of overseas refined oil markets, are poised to enter a prolonged period of sector prosperity. The firm's core viewpoint is that global refining capacity will continue to be strained.
The current high profitability of refined oil products, especially diesel, stems fundamentally from supply-side impacts caused by Middle East and Russia-Ukraine conflicts. Regarding sustainability, a potential blockade of the Strait of Hormuz might be relatively short-term, whereas damage to refineries in Russia and the Middle East is expected to have longer-lasting effects. For instance, Russia's crude oil processing volume remained at approximately 5.6 million barrels per day in the early stages of the Russia-Ukraine conflict. However, as the war has persisted and Ukraine has conducted selective strikes, statistics show that Russia's crude processing volume had dropped to around 3.6 million barrels per day by July, with further disruption remaining a possibility.
Apart from the sudden factors of war, the growth rate of global refining capacity has actually slowed down considerably over the past few years. From 2018 to 2025, refining capacity growth outside of China has nearly stalled, reflecting the industry's expectation of a shrinking lifecycle for refined oil products. Therefore, Orient Securities argues that the industry is unlikely to increase refining capital expenditure again merely due to the current prosperity of refined products. Simultaneously, China and the Middle East, which originally provided the main incremental supply, are expected to see their future growth rates decline amid policy shifts and geopolitical impacts. Hence, the firm projects that global refining capacity will remain persistently tight.
Domestic refining and petrochemical sectors are expected to initiate a long-term prosperity cycle. Diesel is a relatively simple product in the refining process, with overseas diesel-crude oil price differentials historically maintaining a level of $10-20 per barrel. However, following the outbreak of the Middle East conflict, the diesel price differential has surged to $60 per barrel. This exceptionally prominent prosperity will likely prompt overseas refineries to increase diesel production in the short term by reducing yields of lighter components such as gasoline and naphtha. Concurrently, the expansion of domestic blending component exports will also intensify the future supply of lighter components as feedstock for chemical production, thereby enhancing the prosperity of the domestic refining and chemical industry.
In the medium to long term, the excessive profitability of primary products like diesel is bound to weaken many enterprises' willingness to develop deeper processing products, leading to suppressed global investment in "oil-to-chemical" conversion and accelerating the recovery of the chemical sector's prosperity. Finally, after the Middle East conflict concludes, it is highly likely that crude oil supply growth will significantly outpace refining capacity growth, and lower oil prices will drive the chemical segments of refineries to experience an even longer period of prosperity.
Regarding investment recommendations and targets, Orient Securities suggests that domestic refining and petrochemical companies, influenced by the high prosperity of overseas refined oil products, are likely to embark on a prolonged boom cycle. The firm is particularly optimistic about Rongsheng Petro Chemical Co Ltd and China Petroleum & Chemical Corporation, with the former being a 51% controlling shareholder of Zhejiang Petroleum and Chemical Corporation, which possesses a refining capacity of 40 million tons, and the latter being the largest state-owned refining enterprise in China. Both companies also consistently receive national refined oil export quotas, allowing them to directly benefit from high overseas prosperity to a certain extent. Additionally, other representative large-scale domestic refining and chemical enterprises include Hengli Petrochemical Co Ltd and Eastern Shenghong Co Ltd. Furthermore, domestic companies with existing overseas refining and chemical projects stand to benefit more directly, including Hengyi Petrochemical Co Ltd, which operates an 8-million-ton refining project in Brunei.
Risk warnings include changes in the macroeconomic environment, potential errors in capacity statistics, and variations in assumptions affecting calculation results.