Huatai Futures: Three Major Institution Balance Sheets Have Not Yet Reflected the Impact of Middle East Conflict, Current Participation in Crude Oil Market Carries Higher Risks

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Source: Huatai Futures

Author: Kang Yuanning

Market Analysis

The balance sheets of the three major institutions have not yet fully reflected the impact of the Middle East conflict on crude oil supply and demand. OPEC’s supply in March will face a significant cut, while non-OPEC supply is expected to be revised upward, but the room is limited. Oil demand growth this year is also expected to be sharply revised downward, especially chemical demand, as the Strait blockade significantly affects the export of chemical raw materials LPG and naphtha. Additionally, the release of strategic reserves and the decline in refinery operating rates will also impact the previously oversupplied balance sheet this year. When the Strait will reopen for navigation remains a market focus in the short term.

Demand: The EIA estimates 2026 demand growth at 1.23 million barrels per day, revised upward by 30,000 barrels/day from last month. China’s demand growth is 220,000 barrels/day, India’s is 280,000 barrels/day, other Asia-Pacific countries excluding China, Japan, and India increase by 280,000 barrels/day. US demand remains flat, Middle East demand increases by 60,000 barrels/day, Africa by 190,000 barrels/day, and Latin America by 160,000 barrels/day. OPEC expects global demand in 2026 to grow by 1.37 million barrels/day year-on-year, roughly unchanged from last month. OPEC believes demand will increase by 230,000 barrels/day in India, 210,000 barrels/day in China, 160,000 barrels/day in the Middle East, 130,000 barrels/day in Latin America, and 160,000 barrels/day in Africa. We believe OPEC’s demand forecast is somewhat overestimated. The IEA forecasts demand growth of 640,000 barrels/day in 2026, revised downward by 210,000 barrels/day from last month. China’s demand increases by 190,000 barrels/day, India by 150,000 barrels/day, Japan decreases by 30,000 barrels/day. The growth mainly comes from developing countries.

Non-OPEC Supply: The EIA expects non-OPEC supply to increase by 1.16 million barrels/day in 2026 (including NGLs), revised upward by 100,000 barrels/day from last month. US supply increases by 300,000 barrels/day (up 190,000 barrels/day), Canada by 80,000 barrels/day, Brazil by 410,000 barrels/day, Africa by 30,000 barrels/day, Norway by 40,000 barrels/day, and the former Soviet Union region by 20,000 barrels/day. The OPEC Monthly Report estimates non-constraint alliance country supply to increase by 630,000 barrels/day in 2026, unchanged from last month, with US supply up by 100,000 barrels/day and Latin America by 430,000 barrels/day. Since it excludes Kazakhstan and other constraint alliance countries, the supply growth forecast is relatively conservative. The IEA forecasts non-OPEC supply (including NGLs) to grow by 1.11 million barrels/day in 2026, revised downward by 70,000 barrels/day from last month. US supply increases by 370,000 barrels/day, Canada by 80,000 barrels/day, Norway by 140,000 barrels/day, Brazil by 320,000 barrels/day, Kazakhstan decreases by 30,000 barrels/day, and Mexico decreases by 80,000 barrels/day.

OPEC Production: According to EIA, February OPEC production increased by 680,000 barrels/day to 29.25 million barrels/day, a year-on-year increase of 2.09 million barrels/day, mainly driven by Saudi Arabia. The February OPEC production according to OPEC is 28.63 million barrels/day, up 160,000 barrels/day from last month and 1.76 million barrels/day year-on-year. Non-OPEC supply in February was 14.09 million barrels/day, up 280,000 barrels/day from last month. The IEA’s February OPEC production estimate is 29.25 million barrels/day, up 690,000 barrels/day from last month and 2.09 million barrels/day year-on-year.

Call on OPEC: The EIA’s supply-demand gap forecast for 2026 shows a surplus of 1.90 million barrels/day, revised downward by 1.20 million barrels/day from last month. The Call on OPEC for 2026 is 25.50 million barrels/day, revised upward by 260,000 barrels/day from last month. The OPEC full-year forecast for 2026 is 42.89 million barrels/day, down 50,000 barrels/day from last month. The IEA’s forecast for 2026 is 25.95 million barrels/day, revised upward by 220,000 barrels/day from last month.

Strategy

Short-term oil prices remain highly volatile due to geopolitical tensions. Currently, participation in the crude oil market involves high risk. It is recommended to use options to hedge risks.

Risks

Downside risks: Easing of Middle East tensions, Strait reopening, global economic crisis triggered by energy crisis.

Upside risks: Prolonged Strait closure beyond expectations.

Investment Advisory Qualification: Securities Permit [2011] No. 1289

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