Oil prices continue to hit new highs, the opportunity for excess returns to understand?

Recently, although the international stock market has risen and fallen, international oil prices have continued to hit new highs. The latest oil has already surpassed $73, and the US oil is almost $68. Although this price is not comparable to the price of more than 100 US dollars at the 2011-2013 high, it has rebounded more than doubled compared to the low point. .

The history of international oil prices, a simple summary is that after 2008, as seen in the picture below, because of the outbreak of shale oil, US crude oil production continues to increase, but OPEC insists on no market reduction and market share, resulting in no reduction in production, resulting in The global oil supply is seriously oversupplied, and the price of oil has dropped from $110 all the way to around $27. The global oil industry has entered a cold winter.

Until the end of 2016, OPEC reached a production reduction agreement, Russia also cooperated with the reduction of production, oil prices began to slowly recover, and recently slowly reached 70 or so.

1

In the process of constant rebound in oil prices, the correlation between oil companies' stock prices and oil prices will be relatively high. For example, Sinopec and CNOOC's share price are also rising. In the case of Hong Kong stocks that have negative returns this year, oil stocks are positive gains. The performance is very strong.

In general, the correlation between oil prices and oil companies' stock prices is relatively strong. As you can see from the chart below, the price of oil and Sinopec CNOOC stocks are basically fitted.

From the perspective of performance, as the oil price increases, the income profit increases, which can explain this correlation. Off-topic, A-shares are responsible for the stability of the index because of market reasons, so the correlation is not so strong.

Therefore, for the judgment of the stock price of Hong Kong stocks three barrels of oil, the final core is the oil price. Now, how much the oil price can rise, it is really difficult to judge, and the rebound from the bottom is from 70 to 100. This risk-to-benefit ratio does not match.

2

So now, we want to look for investment opportunities in the process of rising oil prices, but instead should look for it upstream of oil.

For example, this is the trend of Hong Kong stocks Anton Oilfield Services and Honghua Group's stock price and oil price. Black is oil price, red purple is stock price. Obviously, the stock price is still rubbing on the floor repeatedly, and it can't match the trend of oil price.

However, we look at the relationship between the stock price of the US oil service giant and the price of oil. On the contrary, the performance of the oil service company will be stronger.

It can be seen from the financial reports of the two oil service companies that their revenues began to rise continuously in 2017, and the performance in the first quarter of this year also rose very sharply. It can be seen from the perspective of the US oil service giant that this industrial chain has been recovering for some time.

Let's take the service of Anton Oilfield as an example. In fact, looking at the 2017 mid-year report and the annual report, the income and profits have started to rise quite sharply. Because the Hong Kong stocks do not publish the quarterly report, the current market still does not know the performance of the first quarter. The situation, but from the situation of these oil service giants overseas, the income and profits of the Hong Kong stocks oil service sector must also have a very good performance.

For example, Jerry shares of A-share oil service equipment company, the profit in the first quarter of 2018 is already several times the full-year profit of 2017.

So a brief summary of what is said above is that with the rise in oil prices, the stock price of Hong Kong stocks oil companies has followed, and Hong Kong stock oil upstream companies, such as oil suits and equipment, have no obvious stock price response, but from the perspective of fundamental performance, Like the oil companies, there has been a marked improvement.

Therefore, the key point is that Hong Kong stocks have obvious expectations for oil upstream enterprises, and once this kind of expected difference is repaired, it may be a very big investment opportunity.

3

Ok, here you may not know the relationship between the oil company, the oil service company, and the equipment company. Here is a brief introduction.

The oil company is the three barrels of oil we often say. Their main job is the exploitation and sale of oil and gas, but the mining will be outsourced to the oil service company, and the oil service company will purchase equipment from the equipment company to complete the mining.

This relationship is like real estate developers are buying land, but the construction of these buildings is often built for companies like China Construction 601668, so the oil company is like a real estate agent, oil service company is like a builder, equipment company is like Excavator company. In addition, in the daily mining of oil fields, the oil service will play the role of a property company to operate the well and maintain daily output.

Therefore, the business logic of this industry chain is that, as shown in the following figure, the change in oil price will change the capital expenditure change of the three barrels of oil. These capital expenditures are mainly paid to the oil service company, so the oil service company’s income source is mainly the oil company. The capital expenditure, while the oil service company will purchase equipment from the equipment company.

From the above business logic, oil prices are the core of the entire industry, so the judgment of oil prices is crucial, but the problem is that oil prices are often not only from the perspective of supply and demand, but also from international politics. From the perspective of consideration, tomorrow's OPEC will reduce production or not quell the quarrel. Tomorrow, the United States will quarrel with Russia and Iran again, and engage in military activities the day after tomorrow. The annual global oil consumption is only 8% of the global oil trading volume. It can be seen that it is very difficult to accurately judge the oil price.

But for us to look at the oil upstream industry chain, we don't need to care about the specific price of future oil. We only need to judge a big direction, and the sustainability of this direction is roughly OK. Because at this price, the capital expenditures planned by oil companies have started to rise, and as long as the oil price can be stabilized, the upstream company can make money.

This picture is a chart of the global free operating cash flow, oil prices, and capital expenditures of global oil companies. It can be seen that the current global growth rate of capital expenditures is already positive.

Specific to our domestic, the growth rate of capital expenditure of three barrels of oil in 2017, CNPC, Sinopec and CNOOC is 24.38%, -2.62%, 2.02%. In general, it is just beginning to pick up, and this year, their capital expenditure growth rate is expected to reach 3.46%, 54.7% and 40.8%, respectively, and capital expenditures have risen sharply.

4

Here is a simple question to determine the trend of oil prices.

In terms of production share, the current world's major oil production OPEC is about 42%, Russia is about 12%, the United States is about 14%, and the remaining 32% are other countries.

The rebound of this round of oil prices began mainly from OPEC production. At the end of 2016, OPEC reached a production restriction agreement for the first time, reducing production by 1.2 million barrels per day. At the same time, other oil-producing countries headed by Russia also agreed to cut production, and planned to reduce production by 600,000 barrels per day. . At the end of 2017, OPEC and Russia and other major oil producers jointly issued a statement agreeing to reduce production until the end of 2018, and in June 2018, consider whether to further adjust production.

OPEC and Russia's production cuts are mainly due to the country's own fiscal balance. According to the report issued by the IMF, Fitch and other institutions, if the 2018 Saudi Arabia wants to maintain the domestic fiscal balance, the demand for oil prices is above 70 US dollars. The Russian request is $72.

Therefore, in this context, it is in the interest of all countries to continue to maintain production reduction agreements and jointly stabilize oil prices.

We must know that this OPEC cooperation production reduction is the first time in eight years, and Russia has also joined the production reduction for the first time in fifteen years. It can be seen that everyone's demands are relatively strong.

In addition, Saudi Aramco plans an IPO. Although this is a bit conspiracy theory, who can deny that there is no relationship. Recently, Saudi Aramco plans to withdraw from the IPO until 2019, which may also be a reflection of confidence in future oil prices. After all, as the world's first IPO, the higher the oil price, the more funds will be raised to support Saudi Arabia's hope to transform into other areas. The appeal.

As a leading producer of limited production, they have the willingness to produce limited products. For some cooperative countries such as Africa and South America, it is unlikely that they will be able to produce on a large scale in a short period of time due to factors such as capital, technology and management. The only uncertainty is considered to be US shale oil production. After all, the United States is now the world's second-largest oil-producing economy, second only to OPEC.

US shale oil production accounts for more than half of US oil production.

In the past, the outbreak of shale oil in the United States stemmed from advances in technology, which led to a continuous decline in unit mining costs. But recent developments indicate a shift in the likelihood that US shale oil costs will continue to fall. Here we must first spread the technical problems of oil exploitation. Oil is not in the same state as a pool of water, but like a water-absorbing sponge, our mining technology can be compared to the strength of our hand-squeezing sponges. The more advanced the technology, the greater the strength of the squeeze, the more oil is produced. Oil like Saudi Arabia is like a sponge that absorbs water. Sometimes it doesn't need to be squeezed, the oil will seep out, and shale oil is like a kind of dry sponge. Extrude the oil. Therefore, there is a strange situation in the oil field that has already been mined. With the introduction of new technology, it is found that this well can produce a lot of oil.

The current state of shale oil in the United States is based on the current technology. This relatively dry sponge can only produce so much oil. If you want to use more force to squeeze, the cost will rise again, and with the oil production. The area is continuously mined, and now the newly mined sponge is more dry than the previous shale oil, and the cost of mining such an oil field will increase.

So the result is the following picture. The output of new wells in the three major producing areas of the US shale oil has not continued to rise, and the output of new wells in the Eagle Ford and Permian basins has remained in a horizontal range.

The number of new wells in the three regions has also remained at the same level.

Another point that needs attention is that American shale oil companies are generally not traditional big companies. Their early capital investment mainly relies on low-interest environment. These bonds generally expire in 2018-2020. As US interest rates continue to rise, The financial pressure on these shale oil companies will increase, and the new policy requires these shale oil companies to use free cash flow as a measure of debt. These financial factors have led to a slowdown in the construction of new capacity for shale oil in the United States. The same is true of the demands of these companies, whose debt problems can only be solved by their own profits.

Therefore, US shale oil may not continue to grow as we have previously thought.

At the demand side, the overall growth is steady and upward. In addition, global oil inventories have moved to a low level, and inventory levels are consistent with oil prices of more than $100. Explain that the current supply and demand pattern is to maintain a stable situation, and the stability of international oil prices is a relatively high probability.

5

Due to their own financial reasons, the oil-producing countries have a demand for oil prices. The production-restriction agreement will continue for a long time. The production capacity of the US shale oil will gradually slow down in the future, and the overall support for oil prices will be very good. effect. In the context of the support of oil prices, the stock price of upstream oil service and equipment companies is obviously behind the rise of oil prices. This kind of expected difference deserves more attention. In the future, if the market expects to be repaired, it will provide a considerable excess return.

The specific analysis of specific companies in Hong Kong stocks will have the opportunity to discuss with you next time.

This article was first published on the WeChat public account: Hong Kong stocks. The content of the article belongs to the author's point of view and does not represent the position of Hexun.com. Investors should act accordingly, at their own risk.

(Editor: Zhang Yang HN080)