China Petroleum & Chemical Corp., the world’s biggest oil refiner, posted a 22 percent decline in profit for the first half of the year as oil’s collapse overpowered the boost from cheaper crude used to make fuels and chemicals.
Net income dropped to 19.9 billion yuan ($3 billion), the Beijing-based company known as Sinopec said in a statement to the Shanghai stock exchange on Sunday. Revenue slumped nearly 16 percent to 879.2 billion yuan, the company said.
China’s economy will continue to grow steadily in the second half of the year, driving domestic demand growth for fuels and chemicals, the company said in its Chinese-language statement on Sunday. The oversupply in the international oil market is expected to continue and international oil prices will remain low and volatile, the company said.
One of China’s so-called Big Three oil companies, Sinopec’s earnings compare with a 98 percent profit drop by rival PetroChina Co., the country’s biggest producer, and the first-ever half-year loss by Cnooc Ltd., its largest offshore explorer.
For a story on PetroChina and Cnooc’s market outlook, click here.
Oil refiners typically gain when crude slumps since they benefit from cheaper supply costs, though Sinopec is still vulnerable to the price collapse as it’s the country’s third-biggest oil and gas producer. Brent crude, the global benchmark, averaged about $41 a barrel during the first half of the year, down roughly 30 percent from the same period in 2015.
Sinopec’s operating profit in the first half of the year from refining rose to 32.6 billion yuan from 15.3 billion yuan in the same period in 2015, while earnings from its chemicals business slipped to 9.7 billion yuan from a 10.1 billion yuan. Exploration and production posted a loss of 21.9 billion yuan in the first six months, compared with a 1.8 billion yuan loss a year ago. Marketing and distribution was little changed at 15.8 billion yuan.
Crude production in the first half of the year dropped 11.4 percent to 154.2 million barrels, the company said in the statement, while natural gas output rose 10 percent to 388.7 billion cubic feet. In the second half of the year, Sinopec expects crude production at 147 million barrels, with 125 million coming from its domestic fields and the remainder overseas. Natural gas output will rise to 421.2 billion cubic feet.
Sinopec will raise refining throughput to 120 million tons in the second half of the year, from 115.9 million in the first six months, the company said.
China’s oil refiners earlier this year got a boost from a government policy that halts retail fuel price adjustments when oil falls below $40 a barrel, putting a floor under gasoline and diesel prices while crude continued to drop. The rule boosted margins during Sinopec’s first quarter, when net income tripled from a year ago to 6.66 billion yuan.
The nation’s refiners processed a record amount in the first half of 2015 as they capitalized on oil’s drop to a 12-year low and as independent refiners took advantage of looser restrictions on how they source crude and sell fuels. Refinery runs averaged 10.7 million barrels a day last month, slipping 2.7 percent from June’s record 11 million, as plants shut for seasonal maintenance.
Profits from fuel making have started falling at integrated refiners from Exxon Mobil Corp. to Royal Dutch Shell Plc as demand growth slows. Global refining margins averaged $13.80 a barrel in the second-quarter, down from more than $19 in the same period last year, according to BP Plc. Asian oil refiners from Singapore to South Korea are cutting operating rates as they grapple with a slump in margins.
Exploration and production has also taken a hit. High costs and low prices have resulted in a decline in China’s domestic crude output, where aging fields are becoming too expensive to maintain. The country’s total crude output has slipped 5.1 percent in the first seven months of the year, while gas output has increased 3.1 percent.
Capital expenditure in the first half of the year fell more than 40 percent to 13.5 billion yuan, Sinopec said.