He Xun Investment Advisor Xu Jun: Oil Prices Continue to Rebound! Global Rescue Measures Fail?

Regarding the current trend of oil prices, my core view is: oil is currently around $89, which is just a consolidation phase and far from the end. According to historical patterns, after each geopolitical conflict ends, oil prices typically take about three months to gradually fall from their highs. This means that oil prices could potentially revisit $119 or even higher. Therefore, tonight’s developments are very critical.

The largest energy rescue operation in history is about to unfold, with the International Energy Agency planning to activate a coordination mechanism. The IEA’s role is essentially that of a global coordinating body, responsible for organizing negotiations among countries to stabilize oil prices. It does not hold oil reserves itself but acts like a small United Nations, convening countries to allocate release quotas based on their oil consumption. The U.S. is the world’s largest oil consumer, and China is also a major consumer. Tonight, we will participate in the IEA vote, casting our vote to join the international rescue effort.

Looking back at history, from 1990 to 2021, the IEA has organized five major interventions to adjust oil prices and release reserves, but China has participated only once—in 2021. At that time, about 50 million barrels were released globally, with the U.S. contributing nearly 20 million barrels, and China only 7 million barrels. To some extent, our enthusiasm for participating in such international affairs has been limited. We believe that each rescue can only address the symptoms, not the root causes.

The IEA was established in 1990. Before that, whenever global oil prices surged sharply, countries could only protect themselves. Humanity has experienced two major oil crises. The first was during the 1973 Fourth Middle East War, which led to an oil embargo. Countries were unprepared, and oil prices skyrocketed from $1.70 to $13, an increase of over 8 times. The second was in 1979, when countries realized the need to build oil reserves, but global reserves at the time were only about 5.3 billion barrels, insufficient to quell panic. These crises prompted the creation of the IEA to coordinate reserve releases among nations.

Since 1990, the IEA has intervened five times, with success in all but the 2011 failure. The most recent interventions in 2021 and 2022, when oil prices reached $130, only took effect after the IEA acted. The 2011 failure is particularly instructive. At that time, oil was at $114, and the IEA coordinated 28 countries to release 60 million barrels over a month, about 2 million barrels per day. However, U.S. daily consumption alone was around 12 to 13 million barrels, so 2 million barrels per day was negligible. More critically, when coordinating OPEC, especially Gulf countries like Saudi Arabia, which derive 80% of their revenue from oil and were reluctant to cooperate, the rescue ultimately failed, and prices continued to rise after a brief dip.

Looking ahead to 2026, the planned release is between 300 and 400 million barrels, which sounds substantial. G7 countries consume about 33 to 36 million barrels daily, so 400 million barrels could last two weeks. But the question is whether supply can be restored after two weeks. Comparing this to the 180 million barrels released in 2021-2022, which only needed to cover a shortfall of about 3 million barrels per day, the current gap is 14 to 16 million barrels daily—much larger. Even optimistic estimates suggest that only less than 1.8 million barrels could be realistically released through pipelines bypassing the Strait of Hormuz, according to recent studies. Over the past ten days, only three ships have successfully passed through the strait—one Chinese vessel, one U.S. escort ship, and one Iranian vessel; gas ships have had zero crossings. Therefore, even if tonight’s rescue plan is finalized, its impact on oil prices may only be short-term, possibly pushing prices down to the $75–$80 range, but unlikely to cause a significant suppression.

China has been reluctant to participate in the IEA’s joint rescue efforts, having only participated once out of five times. The reason is that our domestic refining industry has long faced overcapacity, struggling on the brink of survival over the past seven years. While the three major oil companies are managing, the refining sector as a whole faces significant issues. Therefore, we have been actively promoting reducing oil imports and increasing chemical production, deliberately shrinking refining capacity, phasing out outdated plants, and shifting toward chemical manufacturing. From crude oil refining, products like gasoline, ethylene, propylene, butylene, and benzene are produced in a long industrial chain. We prefer to use crude oil for chemical production rather than solely as fuel.

The deeper reason is that we believe controlling oil prices must address the root causes, primarily by de-dollarization. Since 1990, the U.S. has unilaterally flooded the market, causing global asset prices to become inflated, including the oil market. Oil prices, which were below $40 in 1990, are now high due to the dollar’s excessive issuance. Without bursting this bubble, oil prices are hard to truly control. Therefore, we aim to accelerate the internationalization of the RMB and gradually replace the dollar in commodity settlements. After all, the linkage between oil and the dollar began in 1976, and we are waiting for the next epic crisis to present an opportunity.

Tonight’s rescue plan will most likely involve coordination within the G7, requiring votes from 32 member countries. Currently, opinions are divided, and just one veto could prevent the rescue. The market is betting on this, which is why chemical stocks generally rose today. If the plan is finalized tonight, sectors like metals, pesticides, fertilizers, coal chemicals, epoxypropane, and PEEK materials may need to prepare for a rollercoaster ride.