Sinopec, PetroChina Oil-Refining Losses May Narrow

By Wang Ying and Winnie Zhu

Oct. 28 (Bloomberg) -- China Petroleum & Chemical Corp. and PetroChina Co., the nation's biggest oil companies, will probably post smaller refining losses in the third quarter after crude prices fell from July's record.

Operating losses at China Petroleum's refining division may narrow 42 percent to 34.4 billion yuan ($5 billion) in the third quarter from the April-to-June period, said Aochao Wang, an analyst at UOB Kay Hian Ltd. PetroChina's refining losses may ease 54 percent, said Gordon Kwan, an analyst at CLSA Ltd.

Crude oil prices have fallen from a record $147.27 a barrel reached on July 11, benefiting China's state-run refiners, which are unable to raise prices to pass on costs. The outlook for PetroChina and Sinopec, as China Petroleum is known, is starting to improve just as falling oil prices erode profits at Royal Dutch Shell Plc and BP Plc. Billionaire Wilbur Ross said last month he may buy refiners' shares as oil falls below $100.

``If the oil price remains stable at $75 a barrel, the refining margins at Sinopec and PetroChina will be $25 a barrel and $18 respectively, which will be the highest levels in the history of the two companies,'' said UOB's Wang, who has buy ratings on the shares of both companies.

Sinopec and PetroChina will report third-quarter results tomorrow.

Crude Prices

Benchmark crude oil prices in New York averaged $118.22 in the third quarter, up 57 percent from a year earlier. The December futures traded at $63.52 a barrel at 15:48 p.m. in Hong Kong. PetroChina Chairman Jiang Jiemin said on Oct. 21 he wants to see oil prices at about $80 a barrel. The refining unit will make a profit in November, he said then.

Sinopec's third-quarter profit probably fell 62 percent to 5.2 billion yuan from 13.6 billion yuan a year earlier, according to the median estimate of the three analysts surveyed by Bloomberg News. That's more than double its second-quarter profit of 2.19 billion, helped by higher fuel prices.

China, the world's second biggest oil-consuming nation, raised gasoline and diesel prices by at least 17 percent in June to help refiners cut losses. The government controls fuel prices to limit their impact on inflation in the world's fastest-growing major economy.

PetroChina's Profit

PetroChina may say profit rose 22 percent to 30.2 billion yuan from the April-to-June period when it releases third- quarter numbers for the first time, according to the analysts. Losses at the company's refining unit may narrow to 18.5 billion yuan from 40 billion yuan, said Kwan, the head of China energy research at CLSA.

``With crude prices falling further in the fourth quarter, we estimate much better numbers in the October-December period,'' Yin Xiaodong, an analyst at Citic Securities Co., said by phone in Beijing.

Sinopec shares rose as much as 13 percent, the biggest gain in two weeks, to HK$4.26 and were traded at HK$4.17 as of 15:50 p.m. in Hong Kong. PetroChina shares climbed 11.53 percent to HK$4.74. The benchmark Hang Seng Index rose 13 percent.

Oil has fallen because of concerns a global recession and the worst financial crisis since the Great Depression will cut demand. Declining fuel demand in the U.S., the world's largest importer of crude, caused a 28 percent oil-price plunge in the third quarter.

As crude oil prices drop, Shell and BP, Europe's largest oil companies, may say third-quarter earnings fell from record second-quarter profits when they post earnings later this week. The companies may also scale back investment plans, according to a Bloomberg survey of eight analysts.

Spending Cuts

In contrast, PetroChina has no plans to cut capital spending. The company may buy energy companies weakened by the global credit crisis, Chairman Jiang Jiemin said in October.

Sinopec's operating profit will increase 0.08 yuan per share, or 6.94 billion yuan, with every $1 drop in oil prices, according to UOB's Wang. Each $1 increase in crude will add $400 million to Exxon Mobil Corp.'s net income, according to public filings. The world's largest oil company along with Chevron Corp. may say third-quarter profit rose to a record when they report earnings on Oct. 30 and Oct. 31 respectively.

Shares of PetroChina and Sinopec have dropped more than 60 percent in the past year. Shell is down about 31 percent in the same period while BP's stock has declined 26 percent.

To contact the reporter on this story: Wang Ying in Beijing at ywang30@bloomberg.net; Winnie Zhu in Shanghai at wzhu4@bloomberg.net