China Energy: Oil: 3Q26 Preview: Widening valuation discount signals Upstream re-rating potential; Buy CNOOC, PetroChina

While the valuation gap between Chinese oil majors and DM peers has widened, we see a potential transition from Phase 1 (where DM names have commanded a premium for cleaner exposure to higher prices of oil, gas and refined products) to Phase 2 (where sustained commodity prices and a wide valuation gap redirect investor focus toward discounted names with high FCF yields). Within our coverage, upstream-leveraged CNOOC and PetroChina look well-positioned to re-rate toward global peers given their better cash flow generation profiles;