Middle East Conflict Escalates, Oil Prices Surge More Than 4.5%; Plastics Rally Across The Board, PP Hits Consecutive Limits

I. Overnight Crude Oil Market Dynamics

The ongoing conflict among the United States, Israel, and Iran, coupled with the closure of the Strait of Hormuz, has heightened supply concerns, driving up international oil prices on NYMEX.Crude Oil FuturesContract 04 rose 3.33 USD/barrel, up 4.67%; ICE Brent crude oil contract 05 rose 3.66 USD/barrel, up 4.71%; China's INE crude oil contract 2604 rose 51.4 to 562.4 CNY/barrel, and after-hours trading rose 78.7 to 641.1 CNY/barrel.

Market Outlook

The persistent geopolitical risks have pushed energy and shipping markets to a near-uncontrollable state. Amid concerns over supply disruptions, crude oil market calendar spreads and inter-regional price differentials have exhibited extraordinary and abnormal widening. Following the outbreak of geopolitical conflict, the Brent calendar spread surged sharply, while the Shanghai Crude (SC) inter-regional spread versus European and U.S. benchmarks widened dramatically by over USD 10. This reflects the market’s profound anxiety and panic over the potential closure of the Strait of Hormuz. The United States is considering providing insurance support for tankers to alleviate pressure on Middle Eastern crude transportation. Former U.S. President Donald Trump stated that, if necessary, the U.S. Navy would commence escorting tankers through the Strait of Hormuz as soon as possible. After this announcement, oil prices briefly pared intraday gains; however, Iran subsequently issued a warning to vessels not to transit the Strait of Hormuz. The effectiveness of Trump’s proposed naval escort operation and whether the Strait’s navigability can be restored will be critically decisive. Geopolitical developments have already triggered severe market anxiety, and market sentiment is in an extremely volatile state. Crude oil absolute prices and inter-regional spreads alike face substantial volatility risk. Investors participating in the current market must elevate risk control to the highest level and exercise extreme caution.

II. Macroeconomic Dynamics

1. Trump said Spain lacks cooperation in actions against Iran and will cut off trade with it.

Trump: After the 15% tariff deadline, we will gradually announce tariffs on different countries; we will increase tariff agreements with certain countries.

3. Iran Situation—①Iran claims to have destroyed two U.S. THAAD systems.Korean media: The U.S. is considering moving its THAAD and Patriot systems in South Korea to the Middle East. ② Due to continuous missile attacks,Foreign media report that Saudi Arabia and the UAE are considering joining efforts to strike Iran.The UAE stated it has not yet altered its defense plan. Trump: Iran now wants to negotiate, but it is already too late. The U.S. military is fully equipped to sustain indefinite combat operations. Foreign media report that Israel has formally deployed troops for a ground invasion of Lebanon. The U.S. Senate will vote on a “War Powers Resolution” on Wednesday local time, seeking to limit Trump’s authority to take action against Iran. Iran’s UN Ambassador: Iran has not engaged with the U.S. on potential peace negotiations.Iranian opposition news website: Khamenei's son has been chosen as Iran's next Supreme Leader.

4. Federal Reserve — ① Kashkari: The shadow of war looms; previously expected one rate cut in 2026, but now uncertain. ② Williams:The Federal Reserve will have to consider the spillover effects of the Iranian issue on foreign markets and trading partners.It is still believed that the interest rate is slightly above the neutral rate. ③ Schmied: The only thing the Fed can do is to continue to push down inflation.

5. Energy Situation — ①Trump announced insurance coverage for seaborne crude oil shipments, with the Navy escorting vessels through the Strait of Hormuz.② Debris from an intercepted drone caused a major fire at Fujairah, the UAE's key oil trading hub. ③ Iraq's oil storage facilities are nearing full capacity, forcing the country to cut production by over 3 million barrels per day within days. ④ Saudi Aramco is exploring oil exports via the Red Sea. ⑤ Trump: A short-term rise in oil prices is tolerable; eliminating the Iranian threat takes priority.

Wang Yi spoke on the phone with Israeli Foreign Minister Sa'ar.

7、The central bank net injected 50 billion yuan through open market government bond transactions in February.

8. The Ministry of Industry and Information Technology and five other departments jointly issued the Guiding Opinions on Promoting the Comprehensive Utilization of Photovoltaic Modules.

9、INE adjusts the daily price limit and trading margin ratio for crude oil and other related futures contracts.

10. Ministry of Foreign Affairs: Safeguard the navigation safety of the Strait of Hormuz to prevent greater impacts on the global economy.

11. US actions against Iran affect China's oil supply? Foreign Ministry: China will take measures to ensure energy security.

12、The fourth session of the 14th National Committee of the Chinese People’s Political Consultative Conference (CPPCC) will open at 3:00 p.m. on March 4 at the Great Hall of the People and conclude on the morning of March 11, lasting seven days.

III. Morning Market Dynamics of the Plastics Market

Oil prices surged nearly out of control, intensifying market concerns! Overnight, the main domestic plastic futures contracts rose across the board.

The plastic futures contract 2609 was quoted at 7,403 RMB/ton, up 4.37% from the previous trading day.

The PP2605 contract is quoted at 7451 yuan/ton, up 4.50% from the previous trading day.

PVC4983 contract quoted at 4763 yuan/ton, up 2.07% from the previous trading day;

Styrene 2602 contract quoted at 8249 yuan/ton, up 2.71% from the previous trading day.

IV. Market Forecast

PE: Supported by cost-driven factors and gradually recovering demand, market trading sentiment has improved somewhat. Downstream buyers are primarily procuring on a needs basis, with purchasing activity stabilizing. Given the current situation, cost support stemming from geopolitical conflicts continues to exert influence, while peak-season demand is progressively unfolding, providing some positive momentum to the market. Considering multiple factors, the polyethylene market is likely to maintain a relatively strong and firm-to-bullish trend in the near term, with overall price movements flexibly responding to costs, demand, and market sentiment. Actual transactions will remain largely negotiated on a case-by-case basis.

PP futures have seen two consecutive days of limit-up, with spot quotes rising in tandem. Traders are taking the opportunity to raise prices and sell, and downstream factories are gradually resuming operations, with rigid demand gradually following. Market trading has noticeably become more active. However, the domestic production end still faces the real pressure of high inventories after the holiday, and the core task for enterprises at this stage is to quickly reduce inventory. Considering various factors, short-term market sentiment and costs are the dominant factors. The polypropylene market is likelyely to maintain a strong trend, generally characterized by high and strong fluctuations. After a significant rise, volatility will increase, and actual transactions will be based on flexible negotiations.

PVC: The fundamentals of PVC have slightly changed, especially in terms of downstream demand. With the return of merchants, the demand has somewhat recovered. Regarding exports, it is reported that due to the rise in shipping costs, some export orders have been canceled, although this has not been verified. On the supply side, production enterprises still maintain stable operating rates, and the Spring Festival maintenance has not yet started. However, the spring maintenance is expected to alleviate inventory pressure on the supply side. Overall, the spot price of PVC is likely to continue to remain slightly strong in the short term.