The escalation of the Middle East situation has increased the energy risk premium. On March 2, ICE Brent crude oil opened with an increase of nearly 13%, but then gave back part of the gains; WTI crude oil touched above $75 per barrel before oscillating downward. Driven by the external market, the oil and gas sector on the A-share market rose strongly, with the oil and gas extraction sector gaining more than 8% by midday.
The "three oil giants" – PetroChina, CNOOC, and Sinopec – hit the daily limit. Nearly 20 oil and gas component stocks were locked in. Precious metals, coal, and port shipping sectors were relatively active. At the index level, the Shanghai Composite Index rose by 0.47%, while the Shenzhen Component Index and the ChiNext Index slightly declined, with more than 4,200 stocks falling, showing a clear structural divergence.
Market analysts say that the core of this rally comes from the combined effect of rising geopolitical risk premiums and supply disruption expectations. Short-term funds have shifted towards resources and defensive sectors amid shrinking risk appetite, creating a "seesaw effect."
Oil Fund Premiums Rise, Numerous Risk Warnings Issued
Secondary market trading sentiment has remarkably warmed. Wind data show that as many as 20 listed funds recorded daily gains of over 9%, with 12 hitting the daily limit, including 11 oil and gas funds.
Several fund companies issued premium risk warnings. E Fund, Southern Fund, and Harvest Fund announced in succession that the secondary market prices of their oil LOF funds were significantly higher than the net asset value of the fund units, presenting substantial premium risk.
Calculating by midday close, the premium rates of Huaan SPDR Oil, Southern Crude Oil, and E Fund Oil all exceeded 26%. In the case of suspended subscriptions and regular investment plans, investors can only participate through on-exchange trading. If geopolitical sentiment fades, the convergence of premiums could overlap with net value adjustments, forming dual downward pressure.
Individuals close to the regulatory body stated that fund companies have strengthened risk warnings to prevent liquidity premium mismatches caused by short-term irrational price increases.
Short-term Geopolitical Drive, Long-term Supply and Demand Game
Institutions generally believe that the current oil price has entered a high volatility range dominated by geopolitics. CICC pointed out that during the upward phase of risk premiums, the oil, petrochemical, military, and non-ferrous sectors may achieve temporary excess returns. However, historical experience shows that such performances tend to be temporary.
Guotai Junan Securities predicts that oil price volatility will remain high in the next month. CITIC Futures believes that oversupply remains the baseline expectation; if concerns about Iran's supply are disproven or OPEC+ exceeds expected production increases, oil prices may correct.
On the fundamental level, global supply growth still outpaces demand growth. Non-OPEC+ countries maintain resilient production. According to estimates by Everbright Securities, the marginal cost of U.S. shale oil is around $65 per barrel, forming a cost support for prices. If Brent oil runs at mid-to-high levels, upstream companies' profitability may show marginal improvement.
Cycle Turning Point and Valuation Recovery Expectations
Some institutions consider the current situation as a critical turning point in the industry cycle. Wanjia Fund believes that consecutive years of low global crude oil capital expenditure have decreased supply elasticity. If demand bottoms out and rebounds, there is room for the price center to shift upward.
From a valuation perspective, the current price-to-earnings ratios (P/E) of the "three oil giants" are still in the range below the historical center. If the price center rises and maintains, improved cash flow will drive valuation recovery. Nonetheless, analysts point out that the increase driven by geopolitics often comes with high volatility, and trading rhythm needs to be dynamically adjusted according to changes in risk premiums.
Between the supply-demand fundamentals and geopolitical risks, the market is re-pricing the oil price path. Short-term sentiment dominates price elasticity, while in the medium to long term, it returns to a rebalancing framework of inventory, production, and demand. The high premiums on oil funds remind investors to pay attention to the risk of discrepancies between price and net value.
