From crude oil rising to canola oil, the $100 oil price ignites the "energy substitution" trend

As the “King of Commodities,” the influence of crude oil is being fully demonstrated.

On March 9, international oil prices surged sharply during trading, reaching a high of $119.50 per barrel. Since the escalation of the US-Iran conflict, the cumulative increase has been about 60%.

The rapid short-term rise in international oil prices has not only driven up the costs and prices of petrochemical products but also broke the price comparison relationship between crude oil and other energy products, triggering a significant increase across the entire energy market.

That day, domestic futures and stock markets reacted strongly. The energy sector’s coking coal, coke futures, as well as agricultural futures such as palm oil, rapeseed oil, and soybean oil all saw substantial gains. Meanwhile, Jinlongyu, primarily involved in oilseed crushing and oil refining, also experienced noticeable stock price movements.

Although the correlation between crude oil and these commodities seems limited, there are tangible substitution relationships at the industrial level—for example, plastics, methanol, and urea can be produced using either crude oil or coal as raw materials.

In the fats and oils sector, Baosheng Futures pointed out that “the core driving force of the domestic soybean oil market comes from external factors. Middle Eastern geopolitical conflicts have pushed up crude oil prices, significantly increasing the attractiveness of oils as raw materials for biodiesel.”

However, it should be noted that the overall supply and demand for some oils and fats futures are relatively loose. Coupled with the many uncertainties in the overseas markets that dominate short-term price movements, the overall market volatility risk warrants attention.

Can crude oil also influence rapeseed oil?

According to Xinhua News Agency on March 8, the Israeli military launched attacks on multiple fuel storage facilities in Tehran, Iran.

At the same time, Kuwait Petroleum Corporation announced on March 7 that due to threats from the US-Israel-Iran conflict, the security of ships passing through the Strait of Hormuz and transporting crude oil and refined products has been affected. The company has experienced “force majeure” and has begun reducing crude oil production and refining capacity.

As a result, international oil prices experienced an even more violent surge this week.

On the morning of March 9, Brent crude futures rose by over 30%, approaching $120 per barrel, with market reactions far exceeding those during the initial escalation of the US-Iran conflict.

The sharp short-term fluctuations in oil prices, influenced by energy substitution and price comparison relationships, have directly impacted industries such as coal and oils.

By the close of March 9, Wenhua Finance’s coal and fats sectors had increased by 7.53% and 6.09%, respectively, second only to the oil sector, which includes crude oil and fuel oil.

Coal, as a fundamental energy source, can serve as a substitute in industrial fuels and chemical raw materials. For example, ethylene/polyethylene can be produced either from crude oil or via coal-to-olefins (MTO) processes.

When crude oil prices rise rapidly, significantly increasing the costs of products like ethylene, the economic viability of coal chemical industries is greatly enhanced.

According to reports from the Chinese Academy of Engineering, China Petroleum and Chemical Industry Federation, and others, when Brent crude exceeds $80 per barrel, the economics of coal chemical industries enter a significantly profitable zone.

At the same time, the rapid short-term increase in international oil prices has broken the original price comparison relationship with coal and other energy sources.

Data shows that, based on calorific value equivalence, oil and coal maintain a stable long-term price ratio, with a long-term calorific value ratio of 3.0 to 3.4.

When this price balance is disrupted and the ratio deviates from the median, coal theoretically enters an “undervalued zone,” attracting more market demand or capital inflows, which can push coal prices higher.

If the above transmission relationships are relatively easy to understand, the impact of crude oil on plant-based oils like rapeseed oil may be more surprising.

One key bridge between the two is biodiesel, which uses raw materials such as rapeseed oil, soybean oil, and especially palm oil as its primary feedstock.

Baosheng Futures pointed out that “on Friday, Malaysian palm oil futures soared to a four-month high, posting the largest weekly gain since August, mainly due to the ongoing escalation of Middle Eastern conflicts, which caused international oil prices to surge and strengthened the prices of plant oils including palm oil.”

Other futures institutions generally agree that geopolitical risks pushing up international crude oil prices also enhance the attractiveness of palm oil as a raw material for biodiesel.

Under the linkage of domestic and international markets, palm oil, rapeseed oil, and soybean oil futures in China surged significantly in early trading, quickly transmitting upward to soybean meal and rapeseed meal, which are essential protein sources in the livestock industry and key components of feed costs.

If oil prices remain high, the conflict in the Persian Gulf could continue to “burn” along the industry chain, affecting domestic poultry and livestock feed supplies…

Input volatility risks are rising

While rising international oil prices temporarily boost domestic coal and fats futures prices, the source remains in the Middle East, with many uncontrollable factors.

Additionally, the relatively loose supply and demand for some products, along with domestic independent pricing, are rapidly increasing the risk of external input volatility in related products.

For example, palm oil, which has seen the most prominent gains today, faces a complex situation with both bullish and bearish factors. Take its supply side: according to Xinjie Futures, Malaysia is still in a seasonal production decline, but output is expected to gradually recover after late March. Meanwhile, Indonesia’s increased export taxes may temporarily suppress exports, and policies banning waste material exports will further tighten available oilseed supplies.

Another futures firm noted that domestic palm oil arrivals are concentrated in the near term, with port inventories soaring to historical highs for this season, and downstream demand being weak during the seasonal off-peak period, resulting in a “strong outside, weak inside” pattern.

Looking at the medium- and long-term trends of commodities, supply and demand will play a crucial role. Once disruptions from Middle Eastern tensions weaken, futures prices for oils like palm oil are expected to revert to their fundamentals.

Regarding coal products, even though some domestic imports are needed, the overall self-supply ratio is about 90%, with low external dependence. Price formation is mainly based on domestic independent pricing.

Recent variables influencing coal prices mainly include the pace of domestic coal mine resumption, inventory reduction, and downstream demand recovery.

Furthermore, although $100 per barrel international oil prices heighten expectations for energy substitution, industry responses tend to lag behind capital markets. The key questions remain: how long will high oil prices last, whether companies will follow with substitution, and the overall volume of substitution.

In the short term, the recent price fluctuations of these commodities are primarily driven by market sentiment related to international oil prices. The medium and long-term outlook still faces many uncertainties.

As represented by Brent crude futures, after initial bullish sentiment and the release of emergency oil reserve news, the rally in Brent crude narrowed significantly on the afternoon of March 9.

Before press time, the nearby contract 2605 was around $108 per barrel, with gains retreating from 30% to 17%.

As a result, palm oil futures, main contract coking coal futures hit their daily limit up, and prices of coke, rapeseed oil, and soybean meal also saw notable narrowing of gains.

Domestic INE crude oil futures and related petrochemical products, due to the more direct industry relationship and price comparison with international markets, closed with daily limits.

(Author: Dong Peng; Editor: Wu Yanling)