World’s biggest oil refiner reports profit falls by a fifth

The biggest refiner of crude on the planet is not so large that it is immune to the crash in oil prices as it joins the country's other two of the 'Big Three' in posting tumbling earnings.

An employee walks on top of an oil tank at a Sinopec refinery in Wuhan, Hubei province. The Chinese oil refiner has been hit hard by the collapse of crude prices. Reuters

China Petroleum & Chemical, the world’s biggest oil refiner, posted a 22 per cent 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 (Dh11.01bn), the Beijing-based company known as Sinopec said in a statement to the Shanghai stock exchange on Sunday. Revenue slumped 37 per cent to 879.2bn yuan.

One of China’s so-called Big Three oil companies, Sinopec’s earnings compare with a 98 per cent profit drop by rival PetroChina, the country’s biggest producer, and the first-ever half-year loss by Cnooc, its largest offshore explorer.

Oil refiners typically gain when crude slumps since they benefit from cheaper supply costs, although Sinopec is still vulnerable to the price collapse as it is the country’s third-biggest oil and gas producer. Brent crude, the global benchmark, averaged about US$41 a barrel during the first half of the year, down about 30 per cent from the same period in 2015.

Crude production in the first half of the year dropped 11.4 per cent to 154.2 million barrels, the company said, while natural gas output rose 10 per cent to 388.7 billion cubic feet. Realised price for crude oil fell almost 26 per cent to 1,596 yuan a tonne in the period, while that for natural gas slid 19 per cent to 1,267 yuan per thousand cubic meters.

In the second half, Sinopec expects crude production at 147 million barrels and natural gas output at 421.2 billion cubic feet.

Sinopec will raise refining throughput to 120 million tonnes in the second half of the year, from 115.9 million in the first six months, the company said.

China’s oil refiners 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 petrol 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 6.66bn yuan.

The nation’s refiners processed a record amount in the first half of 2015 as they capitalised 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 per cent from June’s record 11 million, as plants shut for seasonal maintenance.

Profits from fuel making have started falling at integrated refiners from ExxonMobil to Royal Dutch Shell 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. Asian oil refiners from Singapore to South Korea are cutting operating rates as they grapple with a slump in margins.

High costs and low prices have resulted in a decline in China’s domestic crude output, where ageing fields are becoming too expensive to maintain. The country’s total crude output has slipped 5.1 per cent in the first seven months of the year, while gas output has increased 3.1 per cent.

Capital expenditure in the first half was 13.5bn yuan, Sinopec said.

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