The short-term supply and demand is seriously oversupply, and the overlapping production cuts suppress the oil price at a very low position and fluctuate widely. It is expected that production cuts + demand recovery in the second half of the year will push oil prices back to the mid-low range of 40-50 US dollars. If the oil price rebounds, it will benefit the petrochemical industry chain and the coal chemical industry chain. However, the downward trend of the petrochemical boom has not changed, the industry's profit improvement elasticity has become weaker, and the profit stability of the low-cost integrated leader has become stronger. In terms of basic chemical industry, we pay attention to the sub-sectors such as vitamins, agricultural chemicals and construction chemicals that are less affected by oil price fluctuations and whose demand is less affected by the epidemic.

▍Oil prices fluctuate in a wide range in the short-term ultra-low range. A sustained rebound in the medium term requires substantial improvement in fundamentals. The long-term upward trend is clear:

1) The overseas epidemic has dragged down demand, and the supply side has increased production significantly. The short-term oil price has been affected by the uncertainties of production cuts and fluctuated at a low level.

2) In the medium term, the dual pressures of finance and inventory are expected to push the supply side to take output restriction measures as early as April-May. After the oil-producing countries reach a reduction agreement, oil prices are expected to rebound to the full cost range of $ 40 / barrel, but due to The epidemic's suppression of demand is still difficult to ensure fundamental balance by relying on supply-side production cuts. The sharp rebound in oil prices and continued recovery depend on the supply-demand joint efforts. We predict that there may be a fundamental improvement in supply and demand in the second quarter. Push oil prices into a continuous recovery cycle.

3) In the long term, it is expected that demand will continue to grow in the next 5-10 years, but non-OPEC output growth will be limited. The pattern of oversupply in 2022 will gradually be reversed, which will promote the long-term upward trend of the oil price hub. Overall, the oil hub will rebound to 60- 80 US dollars / barrel is a long-term reasonable range of oil prices.

▍The impact of the epidemic on the global economy will continue to affect, and the fluctuation of demand for the entire industry will also increase.

At present, the impact of the market on the epidemic is quite divided. The optimistic view believes that the deep recession will be in the first and second quarters. It will improve after May-June and rebound in the second half of the year. To a deep depression. We believe that it is likely to be between the above two situations, that is, the epidemic will slow down in the middle of the year but will not be eliminated, and there may be subsequent impacts.

The demand of the entire petrochemical industry will also show volatile changes. The short-term epidemic will drive demand fluctuations and higher inventory levels will make the industry face greater pressure; the mid-term global demand side will enter the inventory replenishment cycle, and the shocked demand will quickly rebound ; Long-term infrastructure investment in Europe and the United States is expected to increase significantly, the superimposed "de-globalization" trend is expected to accelerate, the supply chain system is expected to be reshaped, and enterprises with advantages in cost and layout in the industrial chain will have greater flexibility. We are optimistic that companies with strong cost competitiveness and abundant cash flow are expected to win long-term in this round of economic cycle fluctuations.

▍Petrochemical sub-industry: Focus on low-cost integration leader and low valuation high dividend target.

1) Low oil prices test the cost control capability of the oil and gas mining sub-industry. The industry leader with low oil price recovery cycle is expected to usher in Davis' double-click performance valuation;

2) The contraction of upstream capital expenditures under low oil prices drags on the profit expectations of the oil service sub-industry, but the policy-driven drive has caused the domestic oil service short-term performance to fluctuate much less than overseas counterparts, and the long-term policy dividend logic remains unchanged;

3) The overall overcapacity in the refining and chemical sub-sector, and the effect of low oil prices on the improvement of profit elasticity is weakened;

4) The oil price dropped to a low level, and the cost advantage of olefins in the crude oil route appeared, but the concentration of production capacity in the second half of the year or dragged down the profit improvement space;

5) Under the low oil price, the profit of the aromatics and polyester industry chain is lowered and the profit is improved, but the high inventory caused by the epidemic suppresses the profitability continuity;

6) Low oil prices impact the profitability of coal chemical industry and subsequent investment.

▍Fine chemical sub-sectors of vitamins, pesticides, fertilizers, paints, and water reducers are less affected by the drop in oil prices:

1) The spread of overseas epidemics has led to limited supply of vitamin products and some raw materials, which has benefited domestic vitamin leaders;

2) The production capacity of Indian pyrethroids, mancozeb, carbamate, pyridine base and other pesticides is affected by the epidemic situation, and the price of related products is optimistic, and domestic pesticide leaders will benefit;

3) The peak period of real estate completion and recovery in 2020 is expected to be superimposed, and the peak period of recoating growth is expected to come. It is expected that the demand for domestic architectural coatings will recover, and the share is expected to continue to be concentrated in domestic leading companies;

4) Infrastructure investment in 2020 is expected to play a counter-cyclical adjustment role, and the growth is expected to exceed expectations, driving the improvement of the water reducer industry;

5) The domestic phosphate fertilizer operating rate is currently affected by the epidemic, and the load is currently low. The peak season for spring farming is coming. It is optimistic that the price of phosphate fertilizer will rise, which will benefit the industry leader.

▍Risk factors:

The global epidemic failed to be controlled; international oil prices fluctuated significantly; Sino-US disputes intensified; global economic and financial systemic risks broke out.

▍Investment strategy:

Short-term oil prices are double-suppressed by the epidemic's increase in production; oil prices are expected to rebound to around US $ 40 / barrel after the medium-term supply side achieves production cuts. As the epidemic eases and demand improves, oil prices are expected to continue to rise above US $ 50 / barrel; The 60-80 USD / barrel of oil hub is a long-term reasonable range. The low-cost, low-estimated leaders in the sub-sectors of oil and gas exploration, oil service, aromatics and polyester, coal chemical industry, etc. are expected to continue to benefit in the mid-to-long term oil price recovery cycle. The sub-sectors of fine chemicals such as vitamins, pesticides, fertilizers, paints, and water-reducing agents are less affected by the drop in oil prices. The drop in oil prices has led to lower costs for sub-sectors such as dyes, modified plastics, and polyurethanes. It is recommended to pay attention to the leaders of the above sub-industries at low oil prices the company.