Downstream crude oil supply shortage risks rise; how to allocate sectors

Although the International Energy Agency (IEA) proposed an unprecedented large-scale release of strategic oil reserves, the crude oil market did not experience a sharp plunge on the 9th.

As the US-Iran conflict continues, the significant impact of reduced oil production and supply contraction in the Middle East has already occurred. Downstream industry supply shortages are beginning to emerge, with several ethylene plants in multiple countries halting operations, and the supply tightness may further intensify. The domestic coal chemical industry, leveraging cost and capacity advantages, is迎来盈利修复机遇。

Crude Oil Market Ignores Rumors of Massive Storage Sell-Off

The blockage of the Strait of Hormuz persists, and the amount of oil exported from the Middle East is decreasing further. Downstream Asian refineries face increasing risks of supply disruption. Despite the IEA’s proposal for an unprecedented large-scale release of strategic reserves, after a pulse of volatility on the 9th, the market has become more rational and balanced.

On Tuesday, G7 energy ministers held a meeting in Paris. The IEA proposed a record release of strategic oil reserves, exceeding 182 million barrels, surpassing the amount released by member countries after the full-scale outbreak of the Russia-Ukraine conflict in 2022.

Transport issues remain a market focus. According to Morgan Stanley’s daily tracking report released on March 10, only three crude and refined oil tankers passed through the Strait of Hormuz that day, with zero LNG and LPG ships transiting—normal levels are about 35 ships; the situation shows no signs of substantial easing.

Currently, the US military has destroyed several Iranian mine-laying ships but has not yet protected commercial vessels. Early morning on the 11th Beijing time, US Energy Secretary Rick Perry posted: “The US Navy successfully escorted an oil tanker through the Strait of Hormuz.” Shortly after, WTI crude futures in New York fell by $3, with Brent crude futures dropping to around $81 per barrel. An ETF linked to crude futures lost $84 million in market value. However, Perry deleted the post about ten minutes later and clarified that the military had not yet provided escort for commercial ships.

In response, Guoyuan Futures researcher Han Guangyu believes that both bullish and bearish sides are betting on crude oil price trends. The core logic for the bulls is the unprecedented physical supply shock, characterized by an enormous supply gap and rapid depletion of inventory buffers; the bears’ logic is policy rescue measures and easing of the war, with unprecedented releases of oil reserves and clear statements from the Trump administration that the war will end soon. The market driven by single events has essentially ended; divergence has appeared, with pricing logic shifting from “panic supply disruptions” to “policy intervention and war easing.”

Rising Risks of Supply Disruption in Downstream Industries

Currently, shipping costs for Middle Eastern crude to China have risen from $2.5 per barrel to over $20. Even if Middle Eastern oil can safely pass through the Strait of Hormuz to China later, the theoretical cost has long exceeded pre-war levels. This change is rapidly transmitting upstream and downstream along the oil chain.

According to ICIS, an energy market information provider, the average operating rate of ethylene plants in Northeast Asia is expected to decline from 83% in February to 73% in March. South Korea, one of Asia’s largest ethylene exporters, is expected to see operating rates drop from about 80% to 67%. This reduction in cracking capacity may further impact regional ethylene supply patterns. The tight supply situation for ethylene and its derivatives in the region is expected to worsen.

Sun Renjie, research manager at Morgan Stanley Fund Research Department, states that this US-Iran conflict has caused the first real, localized supply interruption, moving the market from “risk anticipation” to “actual supply reduction.” The impact of this crisis is rapidly spilling over along the industry chain. Due to the sharp decline in Strait of Hormuz transit volume, Asian refineries dependent on Middle Eastern crude are facing raw material supply risks and are forced to reduce load preemptively, leading to a significant rise in spot prices of downstream chemicals. In the medium to long term, if the situation persists, it could trigger a reshaping of global chemical trade flows and cost structures. For Chinese refineries, their diversified raw material sources and cost advantages demonstrate greater resilience.

According to calculations by Industrial Securities Research, at current coal prices, the cost of coal-based ethylene production corresponds to an oil price of about $70 per barrel, with high-quality projects potentially lowering costs further, showing significant advantages. While coal-based ethylene glycol and coal-based oil have weaker cost advantages, they can still be profitable when oil prices are above $80 per barrel.

Chemical Sector Still Worth Increasing Allocation

Since early 2026, crude oil has led the rise in major global assets, with the CRB index up over 17%. Domestic methanol spot prices have increased by over 30% year-to-date, reaching a two-year high. Domestic coal chemical, integrated refining, polyurethane, chlor-alkali, fertilizer, and other chemical sub-sectors, leveraging cost and capacity advantages, are迎来盈利修复机遇。

On the 11th, the A-share market’s energy storage and coal chemical sectors became market focal points, with Baofeng Energy (600989), Baichuan Co., Ltd. (002455), and Jinniu Chemical (600722) hitting daily limit-ups. The leading petrochemical ETF (159731) closed up 2.15%, with a trading volume of 199 million yuan. Since the beginning of the year, the fund’s shares increased by 517.62%, and its scale grew by 620%.

Huatai Securities suggests that China is a net energy importer. Under crude supply shocks, short-term trade conditions may worsen, and RMB appreciation may slow. However, China’s energy transition is already underway, and in the medium to long term, energy costs are expected to continue and improve gradually. The recent rise in oil prices will further accelerate this process. Meanwhile, the current Middle Eastern conflict will speed up the erosion of US and dollar credibility—despite short-term fluctuations, the long-term outlook remains for RMB appreciation and USD depreciation. The RMB/USD exchange rate forecast of 6.62 by the end of 2026 remains unchanged.

Jiang Yuting, head of the Financial Products and Research Department at Snowball, points out that under the impact of geopolitical black swan events, global capital markets are showing significant risk aversion and structural divergence. “The market is in a phase of sharp re-pricing driven by geopolitical conflicts. Investors should avoid excessive panic and use market volatility to optimize their portfolio structure. In the short term, avoiding pure tech growth exposure and increasing allocations to defensive dividend assets, energy commodities, and stable quantitative neutral strategies will be key to navigating the cycle.”