China’s Oil, Gas Outlook Cut as Manufacturing Slumps

By Wang Ying and Chua Kong Ho

Feb. 4 (Bloomberg) -- China’s oil and gas industry was downgraded to “cautious” from “attractive” at Morgan Stanley as manufacturing in the world’s third-biggest economy shrank, cutting demand for fuels and petrochemicals.

Chinese oil demand may increase by 1.9 percent this year, less than a previous estimate of 5.4 percent, Morgan Stanley said in a research report today. The stock ratings for Hong Kong- listed Cnooc Ltd. and China Petroleum & Chemical Corp., Asia’s largest refiner, were reduced to “underweight.”

China’s factory output contracted for a fourth month in January as exports fell because of the global recession, a government-backed survey showed today. The latest oil-demand forecast is significantly lower than the average of 7.8 percent over the past few years, Morgan Stanley said in the report.

“Product demand growth in China is expected to slow down in line with the macro-environment,” according to the report. China increased crude oil imports at the slowest pace in three years in 2008, with shipments up 9.6 percent to 178.9 million metric tons.

In line with the demand deceleration, China may rely on imports for about 47 percent of its crude oil consumption by 2010 compared with a previous forecast of more than 50 percent, Morgan Stanley said.

Cnooc shares rose 2.6 percent to close at HK$6.75 in Hong Kong, while Sinopec, as China Petroleum is known, advanced 4.1 percent to HK$4.34. The benchmark Hang Seng Index added 2.3 percent to 13,063.89, up for the first time in three days on speculation China’s stimulus package will support economic growth.

PetroChina Shares

PetroChina Co. remains Morgan Stanley’s “preferred pick” because the Beijing-based company’s refining operations are expected to offset the impact of reduced income from exploration and production, and as it has “limited exposure” to petrochemicals. The stock gained 4.4 percent to HK$5.91.

Morgan Stanley is “bearish” on prices of petrochemicals, with “supply growth running ahead of demand” and industries such as electronics and autos decelerating.

Investment in China’s energy industry has slowed, a reflection of restrained demand, Zhang Guobao, head of the National Energy Administration, said in a broadcast on the official China Central Television today.

Benchmark crude oil prices in New York have slumped 72 percent from a record in July as the worst financial crisis since the Great Depression curbs demand for commodities and energy.

Chinese factories’ plummeting demand for raw materials and parts is hurting suppliers across Asia and the Pacific, helping to send South Korean exports tumbling by a record in January. China’s own shipments fell by the most since 1999.

Government Stimulus

The government is considering additional steps to boost its economy, the Financial Times reported on Feb. 2, citing an interview with Premier Wen Jiabao in London. Gross domestic product expanded 6.8 percent in the last quarter, the least in seven years.

China may enact a stimulus plan for the oil-refining and petrochemicals industry before a meeting of the country’s legislature in March, an official said yesterday. Government departments are discussing the proposal, the official at the state-backed China Petroleum and Chemical Industry Association said, declining to be identified because of internal rules.

To contact the reporter on this story: Wang Ying in Beijing at ywang30@bloomberg.net; Kong Ho Chua in Shanghai at kchua6@bloomberg.net