3/11 Retrospective Notes

Today, the index experienced normal volume contraction and fluctuation. During the session, banks were all surging, keeping the index closing slightly in the red. The overseas markets, including South Korea and Japan, also closed in the mid-red. From the news perspective, China has already started sending torpedoes toward the Strait of Hormuz, which indicates that they do not want oil tankers to pass through. So, everyone doesn’t need to pay attention to what the yellow-haired guy says, because his statements can change hundreds of times a day. Whether negotiations can happen now mainly depends on China, not the yellow-haired guy. China’s move to send torpedoes toward the Strait of Hormuz shows that short-term negotiations are unlikely; otherwise, there would be no need to bother with such actions. This also confirms my yesterday’s view that China won’t negotiate with the US in the short term. Otherwise, with Xi’s second son just taking the top position, his authority wouldn’t be stable. Without fighting a few tough battles, the people below wouldn’t be convinced. So, the second son also won’t be negotiating with the yellow-haired guy now. [Taoguba]

Regarding oil, we saw some respect for the market. Before 3:00 PM, oil prices were around $85 underwater, and after the close, oil started rising, reaching $90. This can be seen as giving face to the big A-shares market. Meanwhile, to suppress oil prices, the International Energy Agency (IEA) plans to release 180 million barrels from reserves. During the Russia-Ukraine conflict in 2022, oil prices once surged to $130. At that time, the IEA also released reserves, causing oil prices to quickly fall back to around $100. Historically, releasing reserves tends to temporarily lower oil prices. Currently, this is just a proposal, not yet implemented. It requires unanimous approval from 32 member countries, with no opposition. They might reach a decision today or tomorrow. If approved, short-term oil prices will be suppressed. However, I believe this is only a short-term relief. The Strait of Hormuz is a critical choke point; Goldman Sachs and Morgan Stanley estimate the daily gap caused by closure at about 7-10 million barrels. If it remains closed until early April, the gap could reach around 200 million barrels. That’s just until April; if it stays closed for another month, panic could escalate further. Among the 32 countries, few have large oil reserves—only the US has more. If the closure extends to April, even the US might face shortages, let alone releasing reserves to the international market. If the closure lasts until April, countries worldwide will likely ban exports to protect their own oil consumption. The upcoming vote today and tomorrow could see some countries oppose. Unlike the last time when the Middle Eastern oil producers kept pumping during the Ukraine conflict, this time China has attacked several Middle Eastern refineries, and after blocking the Strait of Hormuz, their storage tanks are nearly full, forcing production to halt. Whether the reserves are released depends on the vote, which is influenced by how long these countries expect the war to last. If they don’t release reserves, the negative impact on crude oil will turn positive. Once the news comes out, oil prices are likely to break above $100 and stabilize there. Their vote also reflects whether they see this war as short-term or long-term.

Another important piece of news is that there are rumors circulating that Israel’s Prime Minister, Netanyahu, has been injured or has died, as he has not been seen publicly for three days and has not posted on social media. Some speculate he may have died. If true, this could be good news for US-Iran negotiations, since Netanyahu has been pushing for conflict. With him gone, the US might have less reason to continue fighting, possibly leading to a quicker resolution. Additionally, there are reports that China has set conditions for negotiations—namely, that Israel stops bombing. If Netanyahu has died, Israel might temporarily halt its attacks on Iran, leading to a more peaceful market and a drop in oil prices. However, for oil to truly return to around $70, the key message would be that the US and Iran sit at the negotiation table and reach an agreement. Otherwise, prices will remain high in the short term. The longer the Strait of Hormuz remains closed, the higher the prices will go—that’s the simplest logic.

In the afternoon, the chemical sector showed noticeable movement, driven by a market message: despite rising oil prices causing a surge in related petrochemical products, authorities have told major chemical companies not to use their reserves of oil. This keeps raw material prices high due to supply shortages, which in turn sustains high chemical product prices. Today, chemical stocks reacted sharply at market open, with Wanhua Chemical jumping from a 4% loss to a positive close. The sustainability of high chemical prices depends on raw material costs. This is why the oil, chemical, and coal sectors are all in the same commodity price increase cycle, ranked third in the sequence, due to their strong interrelation.

Recently, it’s important to keep an eye on oil trends, as they currently have the greatest impact on the big A-shares market.