On January 3rd, the stock performance of the oil sector in both the A-share and Hong Kong markets stood out dramaticallyCompanies like Sinopec Engineering (listed as 000852.SZ) hit the daily price cap, while CNOOC Services (601808.SH) and Tongyuan Petroleum (300164.SZ) led in percentage gainsThe 'Big Three' oil companies in China, namely China National Petroleum Corporation (CNPC), Sinopec, and CNOOC, all experienced significant upticks in their stock pricesThe Hong Kong market mirrored this trend, with companies such as BKI Energy (02178.HK) surging by more than 16%, alongside notable gains from CNOOC Oilfield Services (02883.HK), China Oilfield Services Limited (01251.HK), and Anton Oilfield Services (03337.HK).

The surge in stock prices can be attributed to a notable spike in international crude oil prices, which rose nearly 2% on the first trading day of the yearBrent crude oil briefly soared above $76 per barrel, marking its highest point in the last two months

Likewise, natural gas prices in Europe jumped by more than 4%, reaching €51 per megawatt hour, a peak since October 2023.

According to Liang Yinghan, a senior analyst in the natural gas market at Zhuochuang Information, the hike in natural gas prices is a direct response to the shutdown of pipelines and the temporary halting of Norway's LNG export terminalsAdditionally, forecasts predicting a significant arctic storm hitting the U.Sin early January raised concerns about extended cold weather, thereby boosting demand for oil and natural gas and driving prices up.

As of January 3rd, at midnight Beijing time, the February 2025 WTI crude oil futures rose $1.41 to settle at $73.13 per barrel, an increase of 1.97%. Concurrently, the March 2025 Brent crude oil rose $1.29 to $75.93 per barrel, reflecting a gain of 1.73%.

The primary contracts for Chinese crude oil futures also experienced a significant upward movement, opening higher and at one point rising over 2%, achieving a five-month high

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Other contracts, including low-sulfur oil, asphalt, and fuel oil, also displayed similar trendsBy the market close, the main contract for Chinese crude oil futures closed up ¥7.4, reaching ¥562.5 per barrel.

The decrease in U.Scrude oil inventories was a critical factor contributing to the international price surgeData from the U.SEnergy Information Administration (EIA) revealed that commercial crude oil inventories, excluding strategic reserves, hit their lowest level since the week ending September 20, 2024, as of the week ending December 27, 2024.

Moreover, reductions in crude oil production from Mexico have played a role in supporting oil pricesPemex, the state-run oil company, reported that Mexico's daily oil production in November was 656,000 barrels, down from 702,000 barrels in October, marking a 2.7% decline and the sixth consecutive month of production reductions

Year-on-year, November's output fell 9.9% compared to the same month in 2023, which registered 837,000 barrels daily.

Analysts from Huatai Futures noted that the primary driver behind rising international oil prices is the cold weather front affecting North AmericaThe onset of this cold wave is anticipated to increase heating consumption in the U.S., coupled with potential freezing at wells in key production areas like Bakken and Permian, which may lead to a temporary drop in output.

Experts warn that if the cold snap disrupts the Texas power grid, it may result in widespread shutdowns at refineriesCurrently, the U.Soil landscape exhibits a pattern of low inventory, making the inclement weather a short-term support factor for oil prices, though there is no significant shortage of crude in the global physical market.

The cold weather has not only caused a spike in global oil prices but has also been a major factor behind rising U.S

natural gas pricesOn December 30, 2024, natural gas futures prices on the New York Mercantile Exchange surged by approximately 16% to reach $3.936 per million British thermal units, marking a nearly two-year highThe spot price for natural gas also jumped by 21% to $3.395 per million thermal units, second only to the substantial peak of $12.97 per million thermal units reached in January of the same year.

Weather forecasts issued by the National Weather Service on December 31, 2024, included indications of an increased likelihood of abnormally cold weather across the eastern and Midwestern United States over the next 8 to 14 daysAccording to projections from the Natural Gas Weather website, severe winter temperatures are expected to lead to a spike in energy demand, fueling bullish sentiments regarding price increases.

Wang Yafei, a natural gas analyst at Jinlianchuang, mentioned that demand for heating gas in the U.S

is expected to rise in January 2025, likely driving prices further up"In early to mid-January, the Arctic cold front will bring noticeable temperature drops across much of the U.S., resulting in a significant increase in heating gas demandFurthermore, with the commissioning of two new LNG facilities at the end of 2024, the demand for source gas is likely to remain strong," he explained.

Wang further emphasized that the cold weather in January could lead to risks of freezing, limiting gas production in the U.SA tightening supply-demand dynamic may support price increases, with futures prices expected to fluctuate between $2.8 and $3.8 per million British thermal units.

It’s worth noting that prices in the European gas market have also seen upward movementOn January 2nd, gas prices in the Netherlands increased by 4% to reach €50.85 per megawatt hour, the highest level since October 2023.

The strong performance of oil service stocks was notably influenced by the rise in international oil prices

On January 3rd, alongside the increases in the stock prices of the 'Big Three' oil companies, Sinopec Engineering capped its shares, locking in gains after a half-hour of tradingAt the day’s closure, there were still over 30,000 buy orders keeping the price locked inOther key oil service stocks like CNOOC Services, Hainan Oil Engineering, and BKI Energy also exhibited significant upward trajectories.

Industry observers noted that the oil service sector had a remarkable showing in the capital markets in 2024, particularly for stocks with notable performance growth, which have garnered substantial market favorAs of December 31, 2024, stocks such as CNOOC Development, China Oil Engineering, and Sinopec Oilfield Services demonstrated increases of 55.84%, 19.73%, and 11.48% respectivelyAdditionally, the H-shares of Sinopec's refining and chemical engineering benefited from strong earnings and dividends, alongside trading opportunities from returning to the Hong Kong Stock Connect, achieving an impressive annual increase of 87.47% by the year's end.

Reflecting on 2024, from January to May, the Citic Petroleum and Petrochemical Index displayed an upward trend, with substantial gains from March to May

However, since June, the index has experienced a correctionThe third quarter of 2024 yielded an overall market performance, yet with growth lagging behind the Shanghai and Shenzhen 300 IndexSubsequently, the fourth quarter of 2024 exhibited continued sideways oscillation.

Looking ahead to 2025, the market outlook for the oil service sector remains optimisticPredictions for 2025 suggest enhanced capital expenditures will further lift the oil service sector's vitalityThe engineering market within this sector is anticipated to see steady growth, with the 'Big Three' oil companies stepping up their oil and gas production, pushing for new milestones in reserve development and increased output.

Everbright Securities has indicated that the oil service engineering companies under the 'Big Three' are likely to continue signing new contracts, reflecting ongoing growthAs backlogged orders gradually translate into revenue, a further increase in revenues and profits is expected for these engineering firms, solidifying a favorable outlook for 2025 as they align their operations with the industry’s advancing demands.