Refining margins in the U.S, northwest Europe, and Asia have jumped to two-year highs as diesel and gasoline markets tighten with no sign of immediate relief. Refinery closures in recent years, planned maintenance after the summer, unplanned repairs due to outages, and Ukrainian attacks crippling Russia’s oil product exports have tightened the refined petroleum markets everywhere. Forecasters and traders expect a glut on the crude market to depress further benchmark crude futures going into 2026, but th ...

Core Viewpoint - European energy companies outperformed expectations in Q3, driven by strong refining margins that offset weak oil prices, despite an unclear outlook for 2026 [1][3]. Group 1: Company Performance - The MSCI Europe Energy Index saw a 2.7% increase in earnings per share in Q3, contrasting with a market expectation of a 6.8% decline [1]. - Major oil companies like Shell, BP, and Eni were key contributors to the earnings surprise in the MSCI Europe Energy Index [3]. - BP's Q3 profits exceeded expectations, boosting investor confidence in its business recovery [3]. - Shell's profits and free cash flow also surpassed expectations, driven by strong natural gas trading and improved refining margins [3]. - Repsol is entering Q4 with positive momentum from its refining business, which helps mitigate macroeconomic headwinds and weak benchmark oil prices [3]. Group 2: Industry Insights - Other European companies like Galp Energia, Total, and OMV achieved solid profits due to their refining business advantages [4]. - Analysts believe the market has not fully recognized the current strength of refining margins [4]. - The optimistic outlook from major oil companies has reassured investors, with expectations for continued stock buybacks and dividends [4]. - Shell's strategy to increase investments in oil and gas while cautiously expanding renewable energy is seen as prudent and beneficial for mid-term earnings and shareholder returns [4]. Group 3: Future Outlook - The oil and gas industry remains susceptible to further oil price fluctuations, with a projected oil price of around $68 per barrel for 2026 [7]. - A drop in oil prices to $60 could lead to a 20% reduction in earnings per share across the sector [7]. - The current strong refining margins may not be sustainable, as they are expected to normalize [7]. - Despite the robust performance in Q3, the earnings of the five major oil giants are still less than half of their 2022 levels, indicating a long recovery path for the industry [7].

News Summary Core Viewpoint - The recent trends in fuel oil supply and demand indicate a mixed outlook, with low-sulfur fuel oil supply tightening while high-sulfur fuel oil remains stable, influenced by geopolitical factors and refinery operations [1][2]. Group 1: Supply Dynamics - As of November 4, the Shanghai Futures Exchange reported low-sulfur fuel oil warehouse receipts at 45,730 tons, unchanged from the previous trading day, while fuel oil warehouse receipts stood at 46,460 tons, also unchanged [1]. - In October, there was a notable decrease in high-sulfur fuel oil exports from Russia (-570,000 tons) and Iran (-200,000 tons), while Iraq (+650,000 tons) and Mexico (+370,000 tons) saw increases, indicating a slight contraction in overall export volumes [1]. - The CEO of Saudi Aramco noted that fuel demand in the U.S. and Europe is supporting healthy refining margins [1]. Group 2: Market Insights - According to Everbright Futures, the recent decline in Russian gasoline and diesel exports, along with maintenance at Kuwait's Al-Zour refinery, has led to an increase in the diesel crack spread in Asia, potentially tightening low-sulfur supply [2]. - High-sulfur fuel oil inventories remain relatively ample, with stable inflows from Russia expected to continue into Asia. November's overall supply of fuel oil in Singapore is anticipated to remain sufficient [2]. - Demand for low-sulfur fuel oil in Singapore is lacking momentum for growth, while high-sulfur fuel oil demand remains stable. However, strong refining margins for high-sulfur fuel oil may suppress refinery raw material demand [2]. Group 3: Price Outlook - Southwest Futures indicated that the recovery of fuel oil supply in Singapore is bearish for fuel oil prices, while sanctions on Russia and reduced trade tensions between China and the U.S. could support prices [3]. - The strategy suggests focusing on short-selling opportunities in the main fuel oil contracts [3].

Investment Rating - Industry Rating: Outperform the Market (maintained rating) [5] Core Insights - The IEA has cumulatively revised down the crude oil demand increment by 350,000 barrels per day since the beginning of the year, with the latest monthly report projecting demand increments of 700,000 barrels per day for both 2025 and 2026 due to weak performance across major economies and low consumer confidence, particularly in emerging markets [1][11] - On the supply side, the IEA has raised the 2025 crude oil supply increment by 370,000 barrels per day and 620,000 barrels per day for 2026, driven by OPEC's accelerated easing of voluntary production cuts and growth in non-OPEC production, particularly from the U.S., Canada, Brazil, and Guyana [2][21] - Refining margins improved in July, reaching the highest level in the Atlantic Basin since Q1 2024, primarily due to an increase in diesel crack spreads, while gasoline crack spreads narrowed and Asian naphtha and fuel oil crack spreads fell to six-month lows [3][35] - Oil inventories have increased for five consecutive months, with a month-on-month increase of 900,000 barrels per day in June, reaching 7,836 million barrels, the highest level in 46 months, although still below the five-year average [4][39] Summary by Sections Demand Side - The IEA has revised down the crude oil demand increment by 350,000 barrels per day year-to-date, with a forecast of 700,000 barrels per day for both 2025 and 2026 due to general economic performance and low consumer confidence in emerging markets [1][11] - OECD countries, particularly Europe, have shown better-than-expected demand due to monetary easing and fiscal support, while non-OECD countries, especially China and Brazil, have seen a slowdown in demand growth [15][17] - In Q2 2025, demand from OECD Asia is expected to decline by 150,000 barrels per day, with Japan and South Korea experiencing significant drops [16] Supply Side - The IEA has adjusted the 2025 crude oil supply increment upwards by 370,000 barrels per day, with a further increase of 620,000 barrels per day for 2026, attributed to OPEC's easing of production cuts and growth in non-OPEC production [2][21] - OPEC+ production decreased by 250,000 barrels per day in July, with Saudi Arabia's production declining significantly, while UAE and Iran have increased their output [26][29] - Non-OPEC countries, particularly Brazil and Guyana, are expected to contribute significantly to supply growth, with Brazil's production reaching historical highs [32][34] Refining - Refining margins in July reached their highest level since Q1 2024, driven by rising diesel crack spreads, while gasoline crack spreads have narrowed [3][35] Inventory - Oil inventories have risen for five consecutive months, with a notable increase in June, primarily driven by inventory builds in China and the U.S. [4][39]

Group 1: Report Core View - Overnight crude oil oscillated and closed lower, with weakening momentum and a short - term bearish trend. Despite a temporary rebound due to improved risk appetite in the financial market, the overall tone is turning weak. Without new positive factors, there is a risk of further price decline [3] - Although it is the peak demand season from July to August, demand in China and the US has reached its peak with limited growth space and will face a seasonal decline, which is unfavorable for bulls [3] - EIA data shows that the operating rate and processing volume of US refineries are at their peak, and the demand for major oil products such as gasoline is weak, indicating that the peak - season logic may be over [3] - Global inventories are increasing, and the supply - demand balance is relatively stable. With OPEC+ increasing production and a decline in US demand after September, the fundamentals will weaken [3] - Geopolitical risks can only cause short - term disturbances, and there is a risk of a restart of the tariff war in trade negotiations [3] - The low inventory in the US is due to active destocking, and increased exports are squeezing OPEC+ market share, which may intensify future market competition [3] Group 2: Market Dynamics - For the week ending July 11, US EIA crude oil inventory decreased by 3.859 million barrels (expected - 0.552 million barrels, previous value + 7.07 million barrels), strategic petroleum reserve inventory decreased by 0.3 million barrels (previous value + 0.238 million barrels), Cushing crude oil inventory increased by 0.213 million barrels (previous value + 0.464 million barrels), gasoline inventory increased by 3.399 million barrels (expected - 0.952 million barrels, previous value - 2.658 million barrels), and refined oil inventory increased by 4.173 million barrels (expected + 0.199 million barrels, previous value - 0.825 million barrels) [4] - US crude oil production decreased by 1000 barrels to 13.375 million barrels per day, commercial crude oil imports were 6.379 million barrels per day, an increase of 0.366 million barrels per day from the previous week, and crude oil exports increased by 0.761 million barrels per day to 3.518 million barrels per day [4] - The refinery operating rate was 93.9% (expected 94.5%, previous value 94.7%) [4] Group 3: EIA Weekly Data Review - The EIA data update showed a mixed situation, with an increase in transportation fuel inventory being more bearish, except for fuel oil whose inventory continued to hit multi - year lows [5] - US crude oil inventory decreased by 3.86 million barrels in a single week and is slightly below the 5 - year average. Refinery throughput decreased by 150,000 barrels per day, consistent with the 2024 seasonal normal level [5] - Fuel oil inventory decreased by 700,000 barrels, 27% lower than the 5 - year range; aviation fuel output remained high, driving a 570,000 - barrel increase in inventory in a single week [5] - As transportation fuel inventory continues to accumulate, the recent upward trend in refining profit margins along the US Gulf Coast may end, and gasoline and diesel prices may decline from current highs [6] Group 4: Global Crude Oil Price and Spread Changes - Brent crude oil M + 2 was at $68.52 on July 16, down $0.19 from the previous day and $1.67 from the previous week [7] - WTI crude oil M + 2 was at $65.19 on July 16, down $0.18 from the previous day and $1.78 from the previous week [7] - SC crude oil M + 2 was at 504.7 yuan on July 16, down 2.3 yuan from the previous day and 6.3 yuan from the previous week [7] - Dubai crude oil M + 2 was at $66.89 on July 16, down $0.23 from the previous day and $1.35 from the previous week [7] - Oman crude oil M + 2 was at $69.99 on July 16, down $0.34 from the previous day and $1.72 from the previous week [7] - Murban crude oil M + 2 was at $69.81 on July 16, down $0.29 from the previous day and $1.68 from the previous week [7] - EFS spread M + 2 was at $1.63 on July 16, up $0.04 from the previous day and down $0.32 from the previous week [7] - Brent monthly spread (M + 2 - M + 3) was at $0.97 on July 16, up $0.04 from the previous day and down $0.18 from the previous week [7] - Oman monthly spread (M + 2 - M - 3) was at $1.63 on July 16, down $0.26 from the previous day and down $0.31 from the previous week [7] - Dubai monthly spread (M + 1 - M + 2) was at $0.82 on July 16, down $0.08 from the previous day and down $0.21 from the previous week [7] - SC monthly spread (M + 1 - M + 2) was at 10.2 yuan on July 16, down 2.7 yuan from the previous day and up 5.8 yuan from the previous week [7] - SC - Dubai (M + 2) was at $3.6658 on July 16, up $0.0699 from the previous day and up $2.1228 from the previous week [7] - SC - Oman (M + 2) was at $0.6058 on July 16, up $0.0599 from the previous day and up $2.6028 from the previous week [7]

Group 1 - The Indian oil and gas industry is expected to experience significant growth in FY2026 and FY2027 despite recent market volatility [1][3] - Companies in the sector are projected to achieve average sales, EBITDA, and PAT growth of 6%, 12.9%, and 13.3% respectively in FY2026, and 7.8%, 9%, and 10.1% in FY2027 [3] - Preferred investment targets identified include Reliance Industries Ltd (RIL), GAIL India Ltd (GAIL), Mahanagar Gas Ltd (MGL), and Gulf Oil Lubricants India Ltd (GOLI) [3] Group 2 - The oil market has experienced significant fluctuations, with a 22.9% year-on-year decline in Brent crude oil prices as of May 2025, influenced by increased production from OPEC members [4] - Despite lower crude prices, the gross refining margin (GRM) has improved significantly, with an 85% quarter-on-quarter increase and a 121% year-on-year increase, averaging $6.4 per barrel [4] - The natural gas market shows a mixed trend, with U.S. Henry Hub prices dropping 31.8% due to oversupply, while Asian spot LNG prices rose 6.7% to $11.9 per million British thermal units due to strong regional demand [4]