Crude oil prices plummeted in the chemical sector

The plummeting oil price favors the shipping and chemical sectors. As the operating costs of most listed companies decline, they will inevitably increase their overall profitability to some extent. As a result, it is reflected in the secondary market that the fundamentals of the listed companies have improved, and the stock price has risen, thus driving the stock market to pick up.

As of November 27, OPEC’s oil production target of 30 million barrels per day remained unchanged, and international crude oil prices fell below the 70-dollar mark for the first time and set a new low since June 2010.

In fact, since the end of June this year, international crude oil prices have begun to show a sharp decline. Among them, the end of June this year, the highest price of international crude oil prices remained above 107 US dollars. To date, the price level has dropped by more than 30%, posing a heavy blow to some important energy-exporting countries.

The collapse of international crude oil prices is both an opportunity and a challenge for China. However, from the analysis of the current domestic development situation, the impact of the continued decline in international crude oil prices on China is outweighed by its disadvantages.

On the one hand, China is a major consumer of oil, with an external dependence of more than 60%. China can use the opportunity of the international crude oil price plummet to take advantage of low-cost reserves of large amounts of oil resources, thereby achieving the goal of reducing domestic comprehensive fuel consumption costs and alleviating imported inflationary pressures. On the other hand, for most domestic companies, the continued decline in international crude oil prices means that domestic oil prices will also follow the decline. As a result, the company's production and operation costs will be effectively reduced, and the company's overall profitability will be directly enhanced.

In the near future, there has been an unprecedented “eight-pronged decline” in oil prices in China, and it is expected that there will be a trend of “nine consecutive losses” in the near future.

It is undeniable that in the past two years, the price adjustment rate of China's oil prices has increased significantly, and it has gradually achieved the goal of integrating with international oil prices. The reason for this is that on the one hand, China's oil prices are affected by the sharp fluctuations in international crude oil prices, and a modest adjustment has been made with the decline in international oil prices. On the other hand, thanks to the reform of the new oil price mechanism promulgated in late March last year, the period for adjustment of oil prices and the price adjustment limit for oil prices have been significantly shortened.

The author believes that the plunge in oil prices will not only benefit the recovery of the real economy in China, but also will shape the stock market in the medium to long term.

All along, the ups and downs of international oil prices will have a profound impact on the Chinese stock market. From previous performances, there is a more negative correlation between oil prices and the stock market. That is, the sharp rise in oil prices, the probability of the stock market fell. On the contrary, if the price of oil falls sharply, the stock market is expected to embark on a gradual recovery.

Indeed, the impact of rising and falling oil prices on the stock market is profound, and it has an essential impact on listed companies in different industries.

In general, the plunge in oil prices has directly stimulated large oil-consuming households, mainly aviation and shipping. In addition, the chemical industry and even the consumer industry will benefit from the drop in oil prices.

Obviously, as the operating costs of most listed companies decline, they will inevitably increase their overall profitability to some extent. As a result, it is reflected in the secondary market that the fundamentals of the listed companies have improved, and the stock price has risen, thus driving the stock market to pick up.

It is worth mentioning that due to the drastic fall in oil prices, it will have an essential impact on domestic inflation. In other words, the collapse of international oil prices will directly reduce the pressure on imported inflation in China, which will lead to a reduction in domestic inflationary pressures.

In this regard, the impact of the CPI data in September and October this year can be seen. As China's CPI data successively falls below the level of 2%, China will make appropriate adjustments to major monetary and other policies. Among them, stimulus policies such as interest rate cuts will also follow, and even officially start the cycle of China's interest rate cuts.

According to past experience, when the CPI falls below the 2% level and continues to run below the 2% level, there will be a clear shift in the central policy, which will prompt the CPI to recover gradually from below 2%. At this time, it often leads to the mid-term big bottom of the stock market, and brings more expectations for the continued stability of the stock market.

Obviously, for the Chinese stock market that has just come out from the bottom, the collapse in oil prices will prompt a shift in central policy and a sharp drop in the overall operating costs of the company, which will form a medium-to-long-term advantage for the stock market. At the same time, it also creates more imagination for the continued warming of the market.

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