In August 2026, a statement concerning the Strait of Hormuz captured global attention—Iran's Armed Forces Chief Commander Hatami publicly declared that the United States would no longer be permitted entry into the Persian Gulf, the Gulf of Oman, or the Strait of Hormuz. International oil prices surged in response, with Brent crude futures settling at $88.82 per barrel and WTI crude at $82.40 per barrel. Behind these headlines lies a substance both familiar and enigmatic: oil. Why does it drive nations into confrontation and send markets into turmoil? Let's delve into these current events to rediscover the "liquid gold" that flows beneath our feet.
The Origins of Oil: A Recipe Cooked Over Hundreds of Millions of Years
To grasp why oil holds such significance, we must first understand what it is and where it comes from. The prevailing scientific consensus supports the "organic origin theory": oil was formed over vast geological timescales from the remains of microscopic organisms—plankton and algae—that thrived in ancient oceans and lakes. Imagine hundreds of millions of years ago, countless tiny lifeforms flourished in primordial seas, sinking to the seabed upon death and mixing with sediment to form organic-rich mud. As tectonic activity buried these deposits layer upon layer, temperatures and pressures rose—when subsurface temperatures exceeded 90 degrees Celsius, the organic matter gradually "cracked" through thermal decomposition, much like chocolate heating up, generating hydrocarbon compounds. This process spans roughly 2 million to 500 million years.
The resulting oil does not simply remain stationary. Because oil and natural gas are less dense than water, they migrate upward through rock pores and fractures, driven by formation pressure. Some oil gets "trapped" along its journey—when it encounters impermeable rock layers such as shale or salt formations, it can rise no further and accumulates in the porous rock beneath, forming the conventional reservoirs we extract today. Other portions that fail to migrate remain within the source rock, such as mudstone, becoming shale oil. In a sense, every drop of oil is a condensed chapter of Earth's history. The gasoline in a modern car's tank may be burning energy released from the "remains" of Carboniferous algae that lived 300 million years ago.
From Underground to Fuel Tank: How Oil Is Brought to the Surface
Having explored oil's origins, the next question is: how do we extract it from thousands of meters beneath the surface? Oil production generally proceeds through three stages, known in the industry as "primary recovery," "secondary recovery," and "tertiary recovery." Primary recovery relies on the reservoir's natural pressure—similar to opening a shaken soda bottle, where oil and gas flow out on their own. As pressure declines, well output gradually diminishes. This is where secondary recovery comes in: injecting water or gas into the reservoir to "squeeze" out the oil. If further extraction is needed, tertiary recovery employs methods such as injecting chemicals, steam, or microbes to drive out the "residual oil" clinging to rock pores.
In 2026, China achieved remarkable breakthroughs in oil and gas exploration. Since the launch of the new round of strategic prospecting initiatives, national investment has totaled nearly 450 billion yuan, leading to the discovery of 225 new medium-to-large oil and gas fields across the Tarim, Ordos, and Bohai Bay basins, including 13 billion-tonne oilfields and 26 hundred-billion-cubic-meter gas fields. More symbolically significant, China's first 10,000-meter scientific exploration well—the Shendi Take-1—successfully drilled through strata beyond 10,000 meters, marking the world's first discovery of oil at such depths. This signals that humanity's quest for underground oil and gas resources is expanding ever deeper and farther.
The Many Transformations of Oil: Far More Than Just Fuel
Many people assume oil is simply gasoline, but its applications extend far beyond that. Once crude oil is extracted, it undergoes refining through distillation and processing to yield various products. In an atmospheric distillation tower, crude is heated and separated by boiling points into fractions: petroleum gas (used for LPG) emerges first, followed by gasoline (for cars), kerosene (for aviation fuel), diesel (for trucks and ships), heavy fuel oil (for marine bunkers and power generation), and finally residual oil (for asphalt and coke). Yet these represent only a fraction of oil's utility.
Oil is also the most critical feedstock for the modern chemical industry—the polyester clothing we wear, plastic bottles we use, fertilizers applied to crops, pesticides sprayed in fields, and many pharmaceuticals all trace their origins to petroleum. Statisticians have noted that while the wooden part of a standard pencil comes from trees, the graphite in its core, the paint on its shaft, and the eraser material may all be linked to oil. Oil has permeated every corner of contemporary life.
The Oil Landscape of 2026: Geopolitics, Supply-Demand Dynamics, and Transition
Returning to the opening news: why does a single development in the Strait of Hormuz trigger such volatile oil prices? The Strait of Hormuz is the sole waterway connecting the Persian Gulf to the Indian Ocean, through which approximately one-third of globally seaborne oil passes. Before the US-Iran conflict, an average of 20 million barrels of oil and petroleum products transited the strait daily. Since 2026, the conflict has impeded passage, with IEA data showing Middle East crude loadings dropping from 20 million barrels per day in early July to 12 million barrels per day by month's end. Global observed oil inventories fell sharply by 69 million barrels in July. This explains why markets remain hypersensitive to any development in the strait—it directly determines whether the "main artery" of global energy supply remains unobstructed.
Simultaneously, profound changes are unfolding on both supply and demand fronts. On the supply side, OPEC+ plans to raise production quotas by approximately 188,000 barrels per day in September, though actual output remains constrained by the strait blockade. On the demand side, the IEA continues to downgrade global oil demand forecasts, projecting a year-on-year decline of 1.6 million barrels per day in 2026. With geopolitical tensions pushing prices upward while weak demand exerts downward pressure, bullish and bearish forces are locked in fierce contention, keeping oil prices oscillating broadly within the $80–90 range.
More far-reaching changes stem from the energy transition. In June 2026, China's National Development and Reform Commission and National Energy Administration issued the "15th Five-Year Plan for Building a New Energy System," explicitly proposing "vigorous promotion of oil consumption substitution" and laying out capacity for green fuels such as biofuels, green ammonia, and green methanol. In August, the two agencies followed up with the "15th Five-Year Plan for Oil and Gas Development," calling for "supporting green fuel development to supplement and replace traditional petroleum products." Research institutions estimate that approximately 0.714 tonnes of oil products per tonne of crude have substitution potential.
The Crossroads of Black Gold
Oil is a gift "brewed" by Earth over eons, the lifeblood of modern industry, and a bargaining chip in geopolitics. In the summer of 2026, as tankers in the Strait of Hormuz switched off transponders to navigate covertly, as China's 10,000-meter scientific well discovered new oil and gas in the Tarim Basin, and as the 15th Five-Year Plan charts a roadmap for oil consumption substitution—we stand at a crossroads in the oil era. On one hand, the world still consumes nearly 100 million barrels of oil daily, and no energy source can fully replace it in the short term. On the other, the tide of energy transition is irreversible, with green fuels, electric vehicles, and hydrogen steadily encroaching on oil's territory.
This may be the most delicate moment in humanity's relationship with oil—we cannot live without it, yet we strive to move beyond it. Understanding oil is understanding the foundational logic of modern civilization. The next time you see a headline about oil price fluctuations, consider this: those numbers represent far more than mere changes—they are the convergence point of hundreds of millions of years of geological history, complex geopolitical maneuvering, and the energy future of all humanity.
Positioning in the Oil and Gas Value Chain: Starting with the "Big Three" Oil Giants
Looking back at the summer of 2026, every development in the Strait of Hormuz serves as a reminder: oil is not merely the lifeblood of industry but also the ballast of national security. Regardless of how the energy transition progresses, the strategic importance of oil and gas resources cannot be fully replaced in the near term. At the core of safeguarding these strategic resources are the three state-owned oil conglomerates, hailed as "pillars of the nation."
The term "Big Three Oil Companies" originated from the 1998 restructuring of the petroleum industry, with each enterprise specializing in different segments of the value chain while complementing one another, collectively forming the cornerstone of China's oil and gas supply. PetroChina (中国石油) focuses on onshore oil and gas exploration and production, boasting the nation's most extensive oil and gas production, supply, storage, and marketing network. Its comprehensive advantage in the natural gas value chain is particularly irreplaceable, making it China's largest oil and gas producer and supplier, firmly holding a dominant upstream position. Sinopec (中国石化) excels in refining, chemicals, and refined product sales, operating the densest network of gas stations nationwide. It leads the downstream refining and marketing sector while aggressively expanding into hydrogen energy, crafting a new identity as a clean energy provider. CNOOC (中国海油) specializes in offshore oil and gas exploration and production, serving as the absolute mainstay of marine energy. Its deepwater and ultra-deepwater engineering capabilities rank at domestic leading and internationally first-class levels.
These three enterprises span the entire upstream, midstream, and downstream segments of the petroleum industry—PetroChina "emphasizes resources," Sinopec "strengthens terminals," and CNOOC "specializes in deepwater." Each has distinct strengths while complementing the others, forming the core force for implementing national energy security strategies. Notably, PetroChina (中国石油), Sinopec (中国石化), and CNOOC (中国海油) are all core constituents of the benchmark index tracked by the Oil ETF Huabao (159019), with their combined weight exceeding 40%.
The Oil ETF Huabao (159019) tracks the Guozheng Oil and Natural Gas Index, whose constituent portfolio provides one-click coverage of 50 A-shares across oil and gas exploration, oil and gas equipment and services, and gas transmission and sales—making it an efficient investment tool for gaining exposure to the A-share oil and gas sector. Understanding the roles and positioning of these three state-owned enterprises is not just the key to deciphering China's energy landscape but also offers investors a clear analytical framework for observing this domain. After all, regardless of how grand the narrative of energy transition becomes, what sustains the functioning of today's economy remains this "black blood" continuously extracted, transported, and refined from deep within the earth.
Note: Fees are detailed in the fund's legal documents. Source: Shanghai and Shenzhen stock exchanges, etc., as of end-July 2026. Data shows that as of end-July 2026, the weightings of PetroChina, Sinopec, and CNOOC in the Guozheng Oil and Gas Index were 15.87%, 12.61%, and 12.91%, respectively.
Risk Disclosure: The Oil ETF Huabao passively tracks the Guozheng Oil and Natural Gas Index, with a base date of December 31, 2002, and published on December 30, 2014. Index constituent composition is adjusted periodically according to index methodology, and historical backtested performance does not indicate future index returns. Companies mentioned herein are presented solely as objective displays of index constituents and do not constitute any stock recommendation, nor do they represent the fund manager's or the fund's investment direction. Any information appearing in this article (including but not limited to stocks, comments, forecasts, charts, indicators, theories, and any form of expression) is for reference only. Investors must bear responsibility for their own independent investment decisions. Furthermore, any views, analyses, or forecasts in this article do not constitute investment advice of any kind to readers, nor shall any liability be assumed for direct or indirect losses arising from the use of the content herein. Investors should carefully read fund legal documents such as the Fund Contract, Prospectus, and Fund Product Information Summary to understand the fund's risk-return characteristics and select products appropriate to their own risk tolerance. Past performance of a fund does not indicate future performance, and performance of other funds managed by the fund manager does not constitute a guarantee of fund performance. According to the fund manager's assessment, the Oil ETF Huabao carries a risk rating of R3-Medium Risk, suitable for balanced (C3) and above investors; suitability matching opinions shall be subject to sales institutions. Sales institutions (including the fund manager's direct sales and other distributors) evaluate fund risks in accordance with relevant laws and regulations. Investors should promptly review the suitability opinions issued by the fund manager. Suitability opinions from various sales institutions may not necessarily be consistent, and risk ratings issued by fund sales institutions shall not be lower than those issued by the fund manager. Risk-return characteristics and risk ratings in the fund contract may differ due to varying considerations. Investors should understand the fund's risk-return profile and carefully choose fund products based on their own investment objectives, horizon, experience, and risk tolerance, bearing risks themselves. Registration of the fund with the China Securities Regulatory Commission does not imply any substantive judgment or guarantee of the fund's investment value, market prospects, or returns. Fund investment requires caution.