Top two oil producers see 20 pct YOY profit growth in Q3

Both of China's top two oil producers announced Wednesday a nearly 20 percent year-on-year growth in net profit for the third quarter, as the new fuel-pricing mechanism improved the profit margins of their refining business.

Sinopec, China's largest refiner, reported its net profit attributable to its shareholders reached 22 billion yuan ($3.6 billion) in the third quarter, up 20.15 percent from a year ago and 63 percent from the second quarter, higher than market estimates.

PetroChina, China's largest oil and gas producer, also disclosed the same day that its net profit rose 19.4 percent year-on-year to 29.8 billion yuan in the third quarter.

Boosted by the bullish news, the A-share prices of Shanghai-listed Sinopec and PetroChina surged by 3.46 percent and 2.23 percent respectively at market close Wednesday compared with the previous trading day, higher than 1.48 percent uptick of the benchmark Shanghai Composite Index.

"The two leading oil producers have enjoyed higher margins for their refining business after the policymakers launched a new fuel-pricing mechanism in March," Sun Yansong, an analyst at C1 Energy, told the Global Times Wednesday.

The new pricing scheme triggers fuel price adjustment every 10 working days down from the previous 22 days. The shorter cycle of adjustment allows domestic fuel prices to move more closely with the conjuncture of global crude oil markets and allow them to pass the rising cost to consumers in times of upward global market movement.

Sinopec's refining business achieved an operating profit of 6.4 billion yuan in the first nine months, over a loss of 16.5 billion in the same period a year ago.

PetroChina cut losses by 19 billion yuan in its refining business in the first three quarters compared with the same period of last year, the company said.

The improved economy in the third quarter also boosted demand for oil products, which contributed to the strong financial performance of the oil producers, Li Hong, an analyst at 100ppi.com, a commodities and energy market intelligence provider, told the Global Times on Wednesday.

However, the net profit of the two oil giants in the fourth quarter may not be better than in the third quarter as the country starts to pay more attention to environmental protection and adopts measures to make the air cleaner, Li said.

China's cabinet, the State Council, announced in September stricter fuel standards in an effort to reduce car emissions after heavy smog plagued many cities and regions at the beginning of 2013.

According to the timetable for fuel quality upgrades, gasoline should meet the phase-four standard in 2014 and diesel by 2015; both gasoline and diesel should meet the phase-five standard with sulphur content for fuel set at no more than 10 ppm (parts per million) by 2018, equal to Europe's Euro V vehicle emissions standard.

With the mandate, the top two State oil giants which account for about 80 percent market share of China's refining capacity, have to upgrade their technology to raise the fuel quality, which needs a large amount of investment, Li said.

More cities after Beijing, Shanghai and Guangzhou are expected to roll out auto purchase curbs to ease fuel emissions and auto congestion, which should reduce the demand for gasoline, she said.