PREVIEW-Chinese oil majors set for strong profit, eye fuel hikes

* What: China’s oil companies report Q3 results

* When: PetroChina (Oct 27), Sinopec (28/29), CNOOC (28)

* PetroChina to post best quarterly profit in 2 yrs

* Expected fuel price hike to boost prospects

By Sui-Lee Wee

HONG KONG, Oct 25 (BestGrowthStock) – China’s top two oil majors,
PetroChina (0857.HK: ) and Sinopec Corp (0386.HK: ), are expected
to report stronger profits in their third-quarter results this
week, thanks to higher crude prices and improved refining
margins.

But stronger crude prices are a double-edged sword for
China’s integrated oil firms, which reap the benefits in their
exploration and production operations, but get squeezed by
sometimes having to sell their refined products at a loss due
to artificially low prices set by Beijing.

In the third quarter of last year, state-owned PetroChina
(601857.SS: ) and Sinopec (600028.SS: ) felt the pinch after
Beijing cut gasoline and diesel prices twice, forcing them to
sell fuel at prices below production costs.

In contrast, their Asian peers including Thai Oil (TOP.BK: )
and India’s Reliance Industries (RELI.BO: ), as well as global
titans such as Exxon Mobil (XOM.N: ), earn market-driven margins.

China will raise retail prices for gasoline and diesel from
Tuesday by about 220-230 yuan per tonne or roughly 3 percent,
said a source with a state oil firm, in what would be the first
increase since April. [ID:nTOE69O07C]

“At some point in this quarter, they would have to raise
prices,” said RBS analyst David Johnson. “They can’t delay it
at this point. If the government played fair, the
fourth-quarter outlook for PetroChina and Sinopec would be very
strong indeed.”

Beijing, which last raised gasoline and diesel prices by
4-4.5 percent in April, has been slow to raise pump prices, as
leaders worry about driving inflation even as crude has held
above $80 a barrel in the first two weeks of October.

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For Starmine comparitive data: http://r.reuters.com/gyq99p

For a graphic on China domestic fuel prices:

http://r.reuters.com/rap64j

For a table of China’s retail fuel price history:

[ID:nTOE64U07N]
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China in 2009 started running a domestic fuel price system
that tracks the prices of a basket of international crudes and
adds an undisclosed margin for refiners when crude is under
$80.

STRONG REFINING

Sinopec, Asia’s top refiner, will be the biggest
beneficiary of a fuel price increase and crude price declines
as it has the largest sales network for refined products in
China.

Nomura predicts Sinopec’s third-quarter refining margins,
or the difference between the price refineries pay for crude
and the price at which they sell refined products, will swing
to $3.1 per barrel, compared to a $0.9 per barrel loss in the
second quarter.

PetroChina, the world’s second-most valuable oil and gas
producer after Exxon Mobil, is expected to post its highest
quarterly profit in two years of 34.6 billion yuan ($5.2
billion) on Wednesday, thanks to crude prices that are up 12
percent from a year ago.

Its closest rival, Sinopec, is forecast to report an 8.2
percent rise in third-quarter net income.

Top offshore oil and gas producer CNOOC Ltd (CEO.N: ) does
not report net income for the third quarter. posting only sales
and output figures. Investors will be looking for updates on
whether it can achieve its aggressive production growth target
of 21-28 percent in 2010.
(Editing by Doug Young and Lincoln Feast)

PREVIEW-Chinese oil majors set for strong profit, eye fuel hikes