China
's two
largest oil companies reported strong third-quarter results, with earnings from
their refining operations boosted by changes to the domestic oil-pricing system
introduced by the government in March.
China Petroleum & Chemical Corp. (0386.HK, 600028.SH, SNP), or Sinopec,
Tuesday posted a 20% rise in third-quarter net profit from a year earlier,
better than larger rival PetroChina Co. (0587.HK), which announced a 19%
increase in net profit for the same period. This was no surprise, as Sinopec
has more extensive refining and petrochemicals operations than
PetroChina
,
China
's
largest listed oil company by capacity.
The changes introduced in March involved more frequent adjustments to state-set
domestic Chinese refined oil product prices than had been the case in the past,
which has meant they are now more closely aligned with global prices.
Under the previous system, relatively infrequent adjustments to these prices
resulted in sometimes heavy losses for refiners, particularly at times when the
international price of crude oil was rising sharply.
China
relies on imports for more than half of its crude-oil supply.
Sinopec,
Asia
's largest refiner by capacity, said its net profit
for the three months ended Sept. 30 rose to 22.0 billion yuan ($3.6 billion)
from CNY18.3 billion a year earlier. PetroChina reported a net profit of
CNY29.8 billion in the third quarter, up from CNY24.9 billion the year prior.
PetroChina attributed its weaker results to continued losses in its refining
and chemicals businesses, although its operating losses in that sector in the
January-September period narrowed to 20 billion yuan from 37.4 billion yuan in
the same period last year.
China
's
government has a long history of not allowing refiners to immediately pass on
higher crude-oil costs as a way of keeping a lid on inflation.
Analysts said they expect PetroChina and Sinopec to report stronger full-year
2013 results due to the price changes and the impact of improving economic
conditions in
China
on
their downstream business margins.
"We continue to favor Sinopec over PetroChina in light of a dropping
crude-oil price backdrop in the fourth quarter," Morgan Stanley said in a
research note on Oct. 23.
Last week, the smallest of
China
's
three state-controlled oil majors, Cnooc Ltd. (0883.HK), reported a 17%
increase in third-quarter revenue to 57.35 billion yuan from 48.96 billion
yuan, thanks to stronger oil and gas output overseas following the acquisition
of
Canada
's
Nexen Inc. It didn't
disclose third-quarter net profit.