Triple Whammy Looms for China’s Oil Refiners as Crude Plunges

Crude oil’s steepest crash in almost six years is throwing up a new challenge for China’s refiners — a plunge in the value of their stockpiles.

The oil price drop is adding up to a triple whammy for earnings prospects through the end of the year, for companies already beset by slowing economic growth and state controls on prices. UOB Kay Hian Ltd. yesterday downgraded China’s oil sector to underweight from overweight, citing weaker demand forecasts and the lower oil price.

A fall in crude prices, the raw material used to produce fuels including gasoline and diesel, should typically reduce expenditure and raise profits for refiners. However, weak demand is driving down fuel prices and narrowing those margins. At the same time, the lower oil price is cutting the value of stockpiles accumulated when the market was higher.

Along with Cnooc Ltd., the two companies are China’s biggest oil producers and their upstream operations are getting hit by the plunge in crude. They are now set to lag regional rivals in the battle to make money from refining as well.
Checking Inflation

Qu Guangxue, CNPC’s Beijing-based spokesman, and PetroChina’s Mao Zefeng didn’t answer two calls to their respective offices yesterday. A Beijing-based spokesman for China Petroleum, known as Sinopec, didn’t answer two calls to his office.

PetroChina shares have dropped 2.8 percent from June 19, around the time Brent began to fall from a yearly high of $115.06 a barrel. Sinopec shares have declined 12 percent.

（Bloomberg  Edited by Topco)