Oil prices return to a high of $110: "Three Barrels of Oil" earnings surgeis CNOOC (00883) the biggest winner?

Title context: Oil prices return to a high of $110: "Three Barrels of Oil" earnings surgeis CNOOC (00883) the biggest winner? Text: As U.S.-Iran conflict intensifies, crude oil prices have continued to surge, extending their strength after breaking through $100 per barrel. However, the oil sector has shown divergence, falling for three consecutive trading days, with price drivers appearing somewhat muted. It is understood that the U.S.-Iran conflict has lasted for more than half a year since late February, during which it has gone through repeated cycles of conflict, escalation, easing negotiations, and renewed conflict, causing the Strait of Hormuzthis critical chokepoint for global energy transportationto nearly come to a standstill. Affected by the situation, crude oil prices, after several sharp swings, began to rise in the third quarter, surging to nearly $110 per barrel on September 10, then remaining above $105 per barrel, once again returning to near highs. Affected by oil price fluctuations, most A-share oil stocks rebounded to some extent in the third quarter, but the magnitude was far below the rise in oil prices. Hong Kong-listed "Three Barrels of Oil" performed relatively strongly, basically recovering more than 80% of their losses, among which PetroChina (00857) rose 21% in the third quarter, erasing its second-quarter decline. It is worth noting that after crude oil was sharply pushed higher on September 10, the oil sector did not rise but fell, closing lower for three consecutive days. However, there are no signs of a ceasefire in the U.S.-Iran conflict in the short to medium term, and further escalation of the war is raising expectations for higher crude oil prices, driving repeated activity in the oil sector. So, do the "Three Barrels of Oil" still have opportunities? "The Three Barrels of Oil" rake in profits, CNOOC's net margin reaches 35.36% It is understood that in 2026 crude oil asset prices rose 75%, outperforming most major asset classes. On a quarterly basis, crude oil prices rose 70%, fell 29%, and rose 46% in Q1-Q3 respectively. Although prices fell in the second quarter, they remained at a high level year-on-year. As the three giants of domestic crude oil assets, the "Three Barrels of Oil" also made substantial profits. In the first half of 2026, all three oil companies achieved both revenue and profit growth, among which CNOOC (00883) grew 16.88% and 23.42% respectively, leading the pack. Its shareholder net profit and ROE reached 35.36% and 20.05% respectively, both far higher than PetroChina and Sinopec (00386). CNOOC's main business is crude oil exploration and production, contributing as much as 86.78% of revenue in the first half, while net production was 399 million barrels of oil equivalent, up 3.7% year-on-year, achieving both volume and price increases, with shareholder net profit of RMB 85.818 billion. PetroChina is the leader in crude oil assets. In the first half, its oil and gas equivalent production was 921 million barrels, down 0.3%, of which crude oil production was 463 million barrels, down 2.8%. However, with its massive scale plus the sharp rise in crude oil prices, it remained one of the biggest beneficiaries, with shareholder net profit reaching RMB 103.936 billion in the first half. Sinopec has a diversified revenue distribution, with less impact from crude oil prices. In the first half, its oil and gas equivalent production was 263 million barrels, far lower than PetroChina and CNOOC, and revenue declines in its gasoline and diesel products affected overall performance, with shareholder net profit of RMB 26.567 billion. In Q3 2026, crude oil prices surged more than 45%. The "Three Barrels of Oil" are likely to maintain both revenue and profit growth in the third quarter. Based on average quarterly profit levels, PetroChina and CNOOC are expected to report shareholder net profits exceeding RMB 155.9 billion and RMB 128.7 billion respectively in the first three quarters, surpassing last year's full-year levels. Not only PetroChina, but U.S. oil giants Chevron and Exxon Mobil also profited even more, with Exxon Mobil's second-quarter profit more than doubling. No wonder Trump was envious, angrily criticizing oil companies for making too much money and using "verbal intervention" to suppress oil prices. It is worth noting that a sharp increase in third-quarter performance is a certainty. However, with crude oil prices back at highs, can they continue to move north? Is there room for further price increases in the fourth quarter? This determines the sustainability of the investment value of the "Three Barrels of Oil." Driven by three major variables, CNOOC may be most favored by the market The fundamental logic behind this crude oil rally is that the escalation of geopolitical conflict has broken the balance between demand and supply. Under the influence of three major variables, the upward trend has sustainability: First, military escalation has led to continued transportation disruptions, and the supply side cannot effectively replenish. The U.S.-Iran conflict has caused transportation through the Strait of Hormuz to stall, while conflict between the Houthis and Saudi Arabia threatens to blockade transportation through the Bab el-Mandeb Strait. The alternative route can only go around the Cape of Good Hope, which will significantly increase transportation costs, and these costs can only be passed on through higher oil prices. Second, the supply side continues to contract. Middle East production capacity in war zones is unstable, Russia is prioritizing domestic supply due to the Russia-Ukraine war, and U.S. inventories as a core supplier have fallen to historic lows. Third, demand countries with high dependence on the Middle East, especially Japan and South Korea, are stockpiling oil considering the stability of heavy industry, and producing countries releasing scarcity further pushes prices higher. These three major variables jointly drive oil prices higher over the medium to long term. Goldman Sachs' latest research report points out that if attacks on shipping in the Strait of Hormuz and the Red Sea further escalate, average Persian Gulf production in 2027 would be 4 million barrels per day lower than pre-war levels (the baseline scenario is 500,000 barrels per day lower), and Brent crude could break through $120 per barrel. Of course, considering regional de-escalation and the continued adaptive recovery of Middle East supply, crude oil prices may fluctuate at a high level of $80 per barrel. Clearly, benefiting from rising crude oil prices, the profit cycle for the "Three Barrels of Oil" will not end this year, and performance will also drive valuations higher in tandem. As of now, based on PE (TTM), PetroChina, Sinopec, and CNOOC are at 9x, 14.1x, and 7.3x respectively. Among them, CNOOC has a smaller revenue scale, strong profitability, and the lowest valuation, while Sinopec has a large revenue scale but a lower market value, weaker profitability, and yet the highest PE valuation. From the views of major investment banks, all three oil companies have investment opportunities. For example, CLSA's research report gives all "Three Barrels of Oil" H-shares an outperform rating, with a target price of HK$12 for PetroChina, HK$4.9 for Sinopec, and HK$32 for CNOOC. Goldman Sachs' latest research report raised all target prices, with PetroChina raised from HK$8.6 to HK$11.5, CNOOC from HK$21.1 to HK$31, and Sinopec from HK$3.6 to HK$4.9. The two investment banks' target prices for the "Three Barrels of Oil" are consistent, all more than 20%, 4%, and 30% above current prices. It is worth noting that CNOOC is more favored by investment banks due to its strong profitability. In addition to the above banks, BOCI and CLSA respectively gave CNOOC target prices of HK$34.69 and HK$36, both at premiums of more than 40% over the current price. In addition, CNOOC's dividend yield also exceeds 5.4%, which is relatively high among peers. Overall, with crude oil prices surging this year, the "Three Barrels of Oil" have raked in substantial profits, among which CNOOC's profit margin and shareholder return are far ahead by a wide margin. With crude oil continuing to surge in the third quarter, it is expected to achieve a solid profit level as well. The U.S.-Iran conflict is unlikely to end in the short to medium term, but the switching between "tension and easing" affects crude oil price volatility. The three major variables drive prices upward over the medium to long term, and the long-cycle price increase brings long-term opportunities for the "Three Barrels of Oil." Among the "Three Barrels of Oil," CNOOC has strong profitability, low valuation, and the highest target price premium from investment banks, and may benefit the most in the price increase cycle, warranting close attention.