UBS: China Oil and Gas Sector: Raising Global Price Forecasts and Chinese Oil Majors' 2026E Earnings
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UBS has raised its 2026 average Brent crude oil price forecast by 10 dollars per barrel to 72 dollars, reflecting the effective closure of the Strait of Hormuz. The firm also increased its European and Asian natural gas price forecasts for TTF and JKM by 2 dollars to 12 and 13 dollars per million British thermal units, respectively. The baseline assumption anticipates the conflict persisting for several weeks, causing severe transit disruptions without damaging key oil infrastructure.
Based on these revised commodity assumptions, UBS upgraded 2026 earnings estimates for major Chinese oil companies. PetroChina saw a 13 percent upward revision to 183.3 billion yuan, while CNOOC received a 16 percent upgrade to 148.1 billion yuan. Sinopec experienced a marginal 0.4 percent increase to 52.0 billion yuan due to refining cost pressures from elevated Middle Eastern freight rates.
Top sector preferences remain CNOOC H shares and PetroChina H shares, driven by attractive valuations and high dividend yields. CNOOC H trades at 8 times 2026 earnings, offering a 5.2 percent yield, while PetroChina H trades at 9 times earnings with a 5.6 percent yield.
UBS also raised target prices for upstream services and energy stocks. Offshore Oil Services target was increased to 12 Hong Kong dollars, Jereh to 140 yuan, and Baofeng Energy to 35 yuan, reflecting improved capital expenditure outlooks and widening price spreads between oil and coal.