Two must-own China stocks poised to rally on higher oil prices

The escalating US-Iran war has sent shockwaves through global energy markets, turning the Strait of Hormuz into a volatile chokehold.

With about one-fifth of the world’s petroleum liquids at risk, Brent crude futures recently soared 24% in a single day– the most dramatic surge since the 2020 pandemic lockdowns.

As supply uncertainty persists, Goldman Sachs analysts see a major opportunity in the East.

For investors looking to hedge against geopolitical instability, two Chinese energy giants, CNOOC and PetroChina, are emerging as top-tier “Buy” candidates poised for significant cash flow growth.

CNOOC: the offshore powerhouse leading the charge

China National Offshore Oil Corporation (CNOOC) is strongly positioned to benefit from the “risk premium” as oil prices push past $115.

Unlike its domestic peers that juggle the thin margins of refining, CNOOC’s core business is rooted in pure-play exploration and production.

This upstream focus allows it to capture the upside from rising oil prices almost immediately.

According to Goldman Sachs, even if Brent averages at about $85, CNOOC’s full-year cash flow could be boosted by more than 10%.

Against this macro backdrop, the investment firm believes CNOOC stock is “relatively discounted vs. developed market peers” like Exxon and Chevron.

For investors, the narrative is one of resilience – while the US Treasury Department has restricted certain purchases of CNOOC shares since 2021, the company’s fundamentals remain rock-solid.

As the world’s largest oil importer, China is prioritizing domestic energy security, and CNOOC’s expertise in offshore drilling provides a critical buffer against Middle Eastern supply shocks.

With a lean cost structure and a “Buy” rating from major institutions, CNOOC is a formidable play for those betting on a sustained high-price environment.

PetroChina: diversified strength in a volatile era

While CNOOC dominates the sea, PetroChina offers a more comprehensive, integrated approach to the energy crisis.

As one of China’s state-owned “Big Three,” its business spans from domestic extraction to massive refining and distribution networks. This integration is vital as the Iran war halts shipping through the Strait of Hormuz.

Because PetroChina controls a significant portion of China’s internal energy infrastructure, it is uniquely positioned to manage “supply uncertainty” that’s sent US crude to its biggest weekly gain in history.

Goldman Sachs highlights that PetroChina’s free cash flow is set to grow by “double-digits” even if prices stabilize well below current peaks.

Crucially for Western portfolios, PetroChina does not face the same US investment restrictions as CNOOC, making it a more accessible vehicle for capturing Asian energy growth.

While refiners like Sinopec struggle with a “domestic product ceiling calculation mechanism” that fails to account for rising freight rates, PetroChina’s vast upstream assets provide a natural hedge.

The firm’s ability to maintain operation amidst reports that China has “ordered the largest state oil refiners to suspend exports of diesel and gasoline” highlights its role as a cornerstone of national security, making it a “must-own” during this geopolitical realignment.