On the first trading day after the holiday, many traders noticed an unusual market phenomenon: overseas markets showed no obvious gains overall, international crude oil prices remained range-bound, yet China's energy and chemicals sector staged an independent rally, with multiple products even hitting their daily price limits. What exactly is causing this divergence? Today we will break down the core drivers behind this trend by combining the latest macroeconomic logic with industrial fundamentals.

First, understand this: the core pricing logic for crude oil is no longer supply and demand

When many traders analyze the energy and chemicals sector, their first instinct is to look at crude oil prices, believing that "if crude oil doesn't rise, energy and chemicals have no basis to rally." But under the current geopolitical and macroeconomic environment, this logic has clearly deviated from reality. We must first make one thing clear: at this stage, crude oil price movements are essentially no longer determined by ordinary supply and demand relationships, but by the direction of US core interests. From the international situation during the National Day holiday, we can see that the Middle East geopolitical conflict shows no signs of cooling down, with Saudi Arabia continuing to bomb related areas in Yemen, Russia intensively striking Ukrainian infrastructure, and key energy transport routes remaining in a constant state of instability. Why isn't the US in a hurry to push for de-escalation? The reason is very realistic: current high oil prices fully align with the core interests of the US military-industrial complex and energy conglomerates. We can even see a very telling signal: during the holiday, the US published a six-month battle damage report on Middle East operations, detailing losses of fighter jets, radar systems, and bases. This report was not meant for the public at all — it was meant for Congress, with the purpose of requesting more military budget. As long as the military budget has not been approved, the Middle East situation will not truly ease, crude oil prices will have no basis for a significant decline, and will remain in a high-level oscillating range for a long time. In other words, the core logic for crude oil right now is "easy to rise, hard to fall, maintaining high levels." Even without a short-term sharp rally, it has already provided sufficient cost support for the energy and chemicals sector. What the market is trading is not "how much crude oil rises" but the certainty that "crude oil won't fall" — this is the first foundation for the energy and chemicals sector's ability to rally independently.

Second, the root of divergence: domestic fundamentals expectations are being repaired

With crude oil costs providing a floor, the core driving force behind the rise in China's energy and chemicals sector comes from the repair of domestic macroeconomic fundamental expectations, which is also the fundamental reason for the divergence from overseas markets. Before the National Day holiday, market expectations for the domestic economy were generally pessimistic, and this pessimism had been fully reflected in the prices of various products. However, the PMI data released before the holiday had already given clear recovery signals: overall PMI returned above the boom-or-bust line to 50.2, and notably, new orders in the construction industry PMI rebounded by more than 3 percentage points month-on-month — an extremely high rebound margin. What does this data tell us? It shows that the supporting effects of previously introduced real estate policies, subsidized loans, and infrastructure stabilization policies have begun to emerge. The construction industry's expectations for future demand are turning optimistic, and construction demand is directly linked to downstream consumption of a large number of energy and chemical products: for example, PVC corresponds to pipe material demand, asphalt corresponds to road infrastructure demand, and even methanol, ethylene glycol, and other products are indirectly related to the real estate and infrastructure chains. Previously, the market was overly pessimistic, pricing in expectations of "demand continuing to weaken" too fully. Now that policy effects are gradually materializing, the expectation gap naturally brings about a repair rally. Overseas markets have not reflected domestic policy expectations, so they naturally would not rise in sync — this is what leads to the divergence of "overseas stable, domestic rising."

Third, product level: industrial logic supporting the structural rally

Beyond macroeconomic drivers, this round of gains in the energy and chemicals sector also has very clear industrial logic support — it is not simply sentiment-driven speculation. Different products have their own fundamental justifications for rising: 1. Valuation repair of undervalued products — some energy and chemical products had already fallen to valuation bottoms, such as glass prices dropping below 900 yuan per ton, and soda ash and caustic soda prices having been at low levels for an extended period, essentially fully pricing in the bearish factors of "overcapacity and weak demand." Once market sentiment improves, capital will naturally prioritize these products with high safety margins for a repair rally. 2. Early trading of policy-favored products — for example, this round of PVC gains is essentially the market trading ahead of demand expectations from "six major networks" and other new infrastructure projects. Although in the short term, the demand pull from new infrastructure on PVC has not fully materialized and actual incremental demand may be limited relative to massive capacity, capital will trade expectations in advance. By the time demand truly materializes, the rally may have already played out. 3. Products with independent supply-demand logic strengthening — some energy and chemical products have their own independent supply-demand logic and are inherently not highly correlated with overseas markets or crude oil. For example, urea prices mainly depend on domestic agricultural demand and industrial operating rates, while methanol prices are influenced by coal prices and domestic plant utilization rates. These products' gains are more driven by their own fundamentals and naturally do not need to move in sync with overseas markets. 4. Global diesel shortage catalyzing competing product trades — the market trading hotspot is now shifting from crude oil tightness to refined product crises. Once oil refining shifts toward gasoline and diesel production, it will compete for feedstocks with fuel oil and chemical raw material chains, causing a seesaw effect among oil refining products. Combined with the return of risk appetite after the holiday, this has boosted fuel oil and benzene-based chemicals to rally collectively.

Fourth, what's the outlook for the energy and chemicals sector?

Many traders are now most concerned about one question: can this rally in the energy and chemicals sector be sustained? How should we approach trading going forward? Let us outline a few core trading ideas: 1. Do not blindly short products highly correlated with crude oil — it must be emphasized again that as long as the Middle East situation has not truly eased and as long as US military spending has not been finalized, crude oil has no basis for a significant decline. For energy and chemical products highly correlated with crude oil, such as PP and plastics, do not short them simply because "fundamentals are weak" — cost-side support will far exceed your expectations, and the risk-reward of shorting is extremely poor. 2. When shorting, prioritize products with capacity pressure that have already been speculated — if you really want to find short targets, prioritize products that have significant capacity pressure and whose short-term gains are driven by sentiment speculation. For example, if PVC continues to rally on new infrastructure positive news, you could try shorting on rallies when it fails to make new highs consecutively — after all, massive capacity is a reality, and demand-pull expectations can easily be disproven. Urea is also a product that can be included in the short watchlist, as its supply-demand is relatively loose and it tends to pull back after speculation ends. 3. Long-term focus on undervalued products related to stability and growth — in October, China will likely introduce further stability and growth policies. For undervalued energy and chemical products related to the real estate and infrastructure chains, you can build long positions on dips, with focus on the actual materialization of demand recovery. In addition, among ferrous products related to real estate and infrastructure, especially coking coal and others that are already at very severe discounts, once demand improves, the discount repair rally will be extremely sharp.