PREVIEW-High crude prices to boost PetroChina, Sinopec Q1

* What: China oil companies Q1 results

* When: PetroChina (April 28), CNOOC (28), Sinopec (29)

* Profits lifted by 83 pct rise in U.S. crude oil price

* Refining pressured by Beijing’s reluctance to raise

By Sui-Lee Wee

HONG KONG, April 26 (BestGrowthStock) – Soaring crude oil prices
should have boosted first-quarter profit (Read more your timing to make a profit.)s for Asia’s two
largest energy companies, PetroChina (0857.HK: ) and Sinopec Corp
(0386.HK: ), even as the same price surge squeezes their refining
business due to Beijing’s rigid fuel price regime.

Like western peers including Exxon Mobil (XOM.N: ) and Royal
Dutch Shell Plc (RDSa.L: ), PetroChina (601857.SS: ) and Sinopec
(600028.SS: ), China’s top two oil producers, will benefit from
higher crude prices in 2010, which are expected to average
around $80 a barrel, almost a third higher than a year ago.

But the rising price of crude will put intense pressure on
profit margins for PetroChina’s and Sinopec’s refining
businesses, if state-set prices for oil products such as
gasoline and diesel in China fail to keep pace with crude’s

That disconnect will be especially tricky for Sinopec
(SNP.N: ), Asia’s top refiner, which has the largest sales and
distribution network for refined products in China, but has to
buy more than 70 percent of its crude on the world market.

“Their outlooks will be dependent on China’s domestic
pricing policy,” said Gordon Kwan, head of Asian energy
research at Mirae Asset Securities. “Once inflation fears are
tamed and we don’t get any natural disasters and the renminbi
appreciates, then you’ll see China raising prices.”

Doubts over China’s commitment to bring refined oil product
prices in line with the international market emerged in the
first quarter, due to Beijing’s reluctance to raise pump prices
because of concerns about driving inflation in the world’s
fastest-growing major economy.

China raised retail gasoline and diesel prices by 4 to 4.5
percent in mid-April, its first such move in five months.


For Graphic of China domestic fuel prices vs U.S. crude:

For SmartEstimates data TABLE:


“It’s not enough to give them the profit margins if oil
prices are at $85 a barrel,” said Brynjar Bustnes, a JP Morgan

U.S. crude futures rose to above $85 a barrel on Monday.
Mirae’s Kwan expects China to raise pump prices in May, August
and November, with prices rising by a total 25 percent in 2010.


Sinopec’s heavy exposure to China’s tightly controlled
refining sector has prompted the firm to diversify into
exploration and production projects overseas such as its most
recent $4.65 billion deal for ConocoPhillips’s (COP.N: ) stake in
a Canadian oil sands project. [ID:nN12204127]

Analysts expect Sinopec to report a 22 percent rise in its
first-quarter earnings, according to a Reuters poll.

PetroChina (PTR.N: ), the world’s second-most valuable oil
and gas producer valued at $315 billion, is expected to report
a 66 percent rise in net income in the quarter to 32.5 billion
yuan, as it generates most of its earnings from exploration and

China’s top offshore oil producer CNOOC (0883.HK: ) (CEO.N: )
will release its first-quarter sales and operating data this
week, but not net profit.

In the first quarter, U.S. crude prices (CLc1: ) rose 83
percent versus a year earlier to an average of almost $79 a
barrel, while Brent (LCOc1: ) soared 72 percent to over $76 a

PetroChina also has big hopes this year for natural gas
price reform. The company — now the world’s second-largest by
market capitalisation, after Exxon — controls over 60 percent
of China’s gas output.

“It might lead to a potential re-rating of their gas
reserves,” said Andrew Chan, an analyst with Daiwa Securities.

“If you can monetise that at a much higher price later,
then the market might remove the discount that it has to

PREVIEW-High crude prices to boost PetroChina, Sinopec Q1