Oil prices are rising, but oil stocks are in an awkward position.

Ask AI · Why does an oil price rally fail to lift profits for oil stocks?

Produced by | MiaoTou APP

Author | Ding Ping

Cover image | Visual China

If you only look at the percentage gain, oil stocks are undoubtedly one of the most eye-catching sectors in the 2026 A-share market.

As of the close on April 7, PetroChina and Sinopec (BK0464) have seen a peak year-to-date gain of 40%. The logic behind it is also very straightforward: an escalation of the situation in the Middle East has pushed oil prices sharply higher, which directly benefits oil-related assets.

Although oil prices are still rising, this logic is too intuitive—and therefore also the easiest to run out of steam. Local geopolitical risk has already become a consensus. For A-share oil stocks, their biggest question going forward is whether this round of high oil prices can truly be converted into profits.

And that is exactly their weakest link.

The easiest period to make money has passed

Whether it is de-escalation, stalemate, or escalation, oil stocks are unlikely to see another phase like before—one with “extremely strong logic and extremely smooth price action.”

As the Middle East situation worsens, at a time like this oil prices could instantly surge to $150–$200 per barrel against a backdrop of large-scale supply disruptions.

Even in such extreme conditions, oil stocks may not necessarily benefit in a real, tangible way.

The reason is that uncontrolled oil prices are not a “price increase during normal prosperity,” but a textbook supply-shock-driven inflation. It will quickly transmit into stagflation (inflation with stagnation) expectations, triggering macro risk repricing. Judging from market performance, this change has already begun to show: on the one hand, oil prices continue to climb; on the other hand, the U.S. 10-year Treasury yield has followed a path of rising first and then falling.

In general, oil price increases will push up the U.S. 10-year Treasury yield because the market trades higher re-inflation expectations; and when the 10-year yield falls back, it means the market is pricing slower growth, expectations of rate cuts, or rising recession risk.

Once the stagflation trade is confirmed, investors’ preference may shift from cyclical trading to a defensive trade—more toward gold, Treasuries, and high-dividend assets, rather than high-beta oil cyclical stocks.

If the situation clearly de-escalates—if the Strait of Hormuz moves from full closure by involved parties to limited opening—supply risk would narrow to the scope of political confrontation, and the geopolitical premium would likely drop sharply, with oil prices most likely falling back to $80–$100 per barrel.

In this scenario, the most direct catalyst for oil stocks would quickly disappear.

But the probability of such a rapid cooldown is not high.

On one hand, the U.S. is unwilling to let the situation escalate into full-scale war, because if oil prices get out of control, it would not only raise inflation and increase the risk of economic stagflation, but also directly affect Trump’s chances in the midterm elections. On the other hand, Israel needs to maintain a tough posture to preserve deterrence, yet it cannot risk crossing Iran’s domestic red lines. Meanwhile, Iran must maintain regional influence while also avoiding a devastating attack on its own territory.

So the most likely path is that low-intensity conflict continues.

If the current situation persists and cools around May, oil prices would likely remain in a high-range sideways trading band of $90–$110 per barrel.

The issue is that even if oil prices stay at high levels, A-share oil stocks may not be the most directly benefited asset.

Because for many investors, if the Middle East conflict escalates, oil prices rise, and oil stocks benefit. That logic seems right—but it only holds at the narrative level. It may not hold at the profit level.

Stocks are not crude oil futures. Whether a stock rises does not depend on how high oil prices spike in the short term; it depends on whether oil price increases can be translated into corporate profits—and whether that translation is sustainable.

This is also why, for many cyclical sectors, the phases when they’re easiest to make money (most cyclical stocks’ uptrends mainly have three stages—trading expectations, logic being realized, and profit being realized) have never been when everyone has already fully understood the logic. Instead, it happens when the logic has just been formed, but profits have not yet been sufficiently validated. Once market consensus forms, the sector shifts from trading expectations logic to realizing profits.

At present, oil stocks have already reached the “logic realization” phase, and the next phase is “profit realization.”

So the real question for oil stocks right now is: to what extent can the higher oil prices that have risen translate into profits?

The awkwardness of oil stocks

The biggest misreading of oil stocks in the A-share market is treating the “three majors” (PetroChina, Sinopec, and CNOOC) as the same kind of asset for trading.

For example, China National Petroleum (PetroChina) appears to be upstream, but it is not purely a market-based beneficiary. Looking at PetroChina’s main business in the first half of 2025, oil and gas sales revenue accounted for 47.04%.

(Data source: Wind)

Under normal logic, the profitability of oil and gas sales should be positively correlated with oil prices. But because PetroChina is not purely a commercial company, its pricing for oil and gas is subject to policy constraints.

That is to say, China’s refined oil prices are not fully market-based. Instead, they are adjusted periodically based on changes in international oil prices, with multiple “red lines”:

If the international oil price is higher than $130 per barrel, then as a rule domestic refined oil prices will no longer be raised (price adjustment is paused);

If it is higher than $80 per barrel, the upward adjustment is limited;

If it is below $40 per barrel, there is no price cut; domestic prices, as a rule, will also not continue to be lowered.

This means that although PetroChina has an upstream-benefit logic, the dividends it enjoys are not as complete as what the market imagines. Especially when oil prices rise too fast and too sharply, policy adjustments weaken the elasticity of price transmission, making it difficult for it to capture profits in the retail link at the same time.

Sinopec’s problem is even more direct—it may not even be a beneficiary of high oil prices.

Unlike PetroChina, which is more upstream-tilted, Sinopec’s profit core is more concentrated in midstream and downstream segments such as refining, chemicals, and refined oil sales.

(Data source: Wind)

For businesses in this kind of midstream segment, what truly matters is never the oil price itself, but the crack spread (price differentials).

Refining profits come from processing margins; chemical profits come from product price spreads. In essence, it’s not a business where “the higher the oil price, the better.” On the contrary, when oil prices rise too fast, it often means raw material costs rise first and quickly, while terminal prices and demand transmission are not as smooth. Especially under the continued regulation of domestic refined oil prices: upstream costs rise quickly, while downstream retail prices rise slowly—so the refining and chemicals segment ends up facing profit compression.

Therefore, a sharp rally in oil prices does not inherently benefit Sinopec, and in many cases it can even be negative. This is a bit like the logic that “when gold prices rise, it doesn’t necessarily mean gold stores make more money.”

The one that is actually closer to an “oil price increase beneficiary” is CNOOC (China National Offshore Oil).

The reason is simple.

CNOOC’s business is more concentrated in offshore oil and gas exploration, development, and production. In essence, it is a more pure upstream oil and gas company. It is not deeply involved in the domestic refined oil retail pricing system. Its crude oil sales prices are more directly anchored to the international market, and the path from oil price increases to profit is also shorter and more direct.

So in terms of upstream crude oil pricing, CNOOC’s marketization level is actually higher. That is also why, among oil and gas companies, CNOOC’s profit elasticity is typically noticeably better than PetroChina’s and Sinopec’s.

(Data source: Wind)

So A-share oil stocks are not a sector that can be treated as one interchangeable basket. Only a small number of companies—those more upstream-tilted and more market-based—are truly beneficiaries of oil price increases.

Overall, oil stocks are a classic “contradictory asset”: when oil prices fall, the fundamentals are a headwind; when oil prices rise too much, it can also trigger macro risk and is not conducive to the sustained realization of profits. Even with a mild rise, profit transmission may still be uneven.

So why do oil stocks still receive Buffett’s favor?

Why does Buffett like oil stocks?

To get back to this question, we need to first separate two issues: whether A-share oil stocks are the best solution right now, and whether oil assets are long-term hard assets worth holding.

Those two are not the same thing.

Berkshire Hathaway’s heavy position in Occidental Petroleum (OXY) is already public information. Its holdings include both a large amount of common stock and warrants obtained in the 2019 transaction.

For Buffett, having a heavy stake in oil stocks does not mean that oil stocks are always the market’s best solution at every point in time. It is not because he is bullish on oil prices. It is because oil stocks generate extremely strong cash flows—for example, Occidental can produce huge free cash flow when oil prices are in the $60–$80 per barrel range. That money is then used for share buybacks and dividends. Large oil stocks like ExxonMobil (XOM), Chevron (CVX), and ConocoPhillips (COP) have dividend yields around 3%–5%.

(MiaoTou review: China Galaxy Securities’ research indicates that the overall sustainable breakeven price for U.S. shale oil is generally in the $60–$70 per barrel range.)

MiaoTou has also said that, from a medium-term perspective, it is difficult for oil prices to sustain a one-way uptrend. On the demand side, global economic growth has slowed, and the substitution from new and old energy sources means support for crude oil demand is relatively weak. On the supply side, crude oil supply has relatively high elasticity; once oil prices get too high, producing countries can often restore production and release supply fairly quickly, putting downward pressure on oil prices.

But considering that the main oil-producing countries do not want oil prices to be too low, oil prices also lack the foundation for a large, sustained decline. So, absent disruptions like war, oil prices are more likely to hold around $60–$75 per barrel.

More importantly, oil is viewed by Buffett as a core asset to hedge against inflation and geopolitical risk.

Buffett once judged that the world is moving into an era of high inflation, high fiscal deficits, and frequent geopolitical conflicts. And all of that is happening. The yields on super-long U.S. Treasuries in major economies continue to rise. The scale of outstanding debt keeps growing. Geopolitical conflicts keep flaring up…

(Image source: AI-generated image)

In such a macro environment, physical resources and energy, because they naturally have the ability to transmit inflation, become hard assets. This is the underlying logic behind Buffett’s allocation to oil stocks.

It is worth noting that U.S. oil companies and A-share state-owned upstream oil and gas enterprises have one key difference: the former are more market-driven, with more direct price transmission and more complete profit realization.

So Buffett’s heavy allocation to oil stocks cannot be simply understood as “A-share oil stocks are still the best solution right now.”

Overall, in this round of oil stock gains, on the surface investors are trading geopolitical conflict—but in reality they are discounting the shallowest, most linear logic that is easiest to form consensus around. But what truly determines subsequent performance is not how high oil prices can still surge, but whether profits can be realized, whether that realization is sustainable, and whether it is viewed as a short-term cyclical commodity or a long-term hard asset.

For A-share oil stocks, the current bigger constraint is that profit transmission from PetroChina and Sinopec is not smooth, and that oil prices that are too high can trigger a stagflation trade.

This means that if investors are only betting that oil prices will keep staying at high levels, A-share oil stocks may not be the purest beneficiary asset.

But if we shift the perspective to more market-based upstream oil and gas companies in the U.S. stock market, the logic is completely different. Those companies are not simply betting on oil prices rising; they are allocating an energy hard asset that can continuously generate free cash flow, has the ability to pay dividends and repurchase shares, and can also hedge inflation and geopolitical risk.

In short: if investors are betting on high oil prices, the A-share “three majors” are not the purest beneficiary asset; if investors are looking to allocate anti-inflation energy assets, then U.S.-listed upstream oil and gas companies provide a different logic.

Disclaimer: The content of this article is for reference only. The information contained herein or the opinions expressed do not constitute any investment advice. Readers should make investment decisions carefully.