The first-half earnings report of the largest refiner in Asia, China Petroleum and Chemical Corporation, confirmed market concerns about a weak fuel demand in China.
China Petroleum and Chemical Corporation, commonly known as Sinopec, reported this weekend a first-half net profit that rose 1.7% year-over-year to $5 billion (35.7 billion Chinese yuan). The higher earnings were due to increased domestic crude oil and natural gas production and rising international oil prices.
But the refining metrics of the largest refiner in Asia by capacity all deteriorated compared to the first half of last year, reflecting weak Chinese demand—especially for diesel—that has been spooking the markets this year.
While domestic demand for natural gas saw apparent consumption rising by 10% year on year, domestic consumption of refined oil products fell by 0.5% due to declining diesel demand, Sinopec said in its first-half earnings report.
The corporation was hit harder by the weaker demand than other Chinese state-held energy giants because of its more refining-weighted portfolio of assets.
Sinopec’s domestic production for oil and gas equivalents hit a record high, with oil and gas output at 257.66 million barrels of oil equivalent, up by 3.1% year-on-year. Domestic crude oil production totaled 126.49 million barrels, up by 1.5%, and natural gas production reached 700.57 billion cubic feet, up by 6.0%.
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However, weak earnings and sales at the refining and chemicals divisions partly offset the good upstream results.
Sinopec flagged “severe challenges brought by the weak market demand and narrowing margin of certain products” in the first half of the year.
The corporation had already warned in July that its refining throughput barely inched up by 0.1% in the first half of 2024 due to higher crude prices and lackluster domestic fuel demand.
Gasoline production rose by 6.6% year-on-year and jet fuel output jumped by 15.2%, but diesel production at Sinopec slumped by 8.8%, this weekend’s full first-half report showed.
Light chemical feedstock production also fell, by 7.4%, reflecting weaker demand amid the ongoing property crisis and weaker-than-expected Chinese economic growth.
Sinopec’s domestic sales of refined oil products fell by 2.5%, with retail oil product sales down by 4.7%.
Overall, refineries in China produced 6.1% less fuel in July this year than a year earlier, logging the fourth consecutive monthly decline in output and signaling that the period of weak Chinese demand isn’t over yet.
Sinopec said on Sunday that it “actively addressed the challenges of weak diesel demand and rapid growth of electric vehicles,” while expanding battery charging and LNG fueling network “with charging volume and vehicle LNG operating volume both going up significantly.”
China’s weak diesel demand is not only the result of the property crisis and lackluster economy. It’s also due to a structural change in transportation as an ongoing shift to LNG-powered trucks limits diesel use for transportation, slowing overall oil demand growth.
Jet fuel remains the only bright spot of Chinese oil product demand, logging in double-digit growth this year. But jet fuel consumption alone cannot offset weaker demand for road transportation fuels.
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A rebound in China’s airline traffic this year has boosted jet fuel demand in the only bright spot in transportation fuel consumption in the world’s top crude oil importer. But as a share of China’s total fuel consumption, jet fuel is much smaller than the shares of gasoline and diesel.
Faltering overall oil demand and lower crude imports in China result from weaker economic growth and lackluster fuel demand below expectations.
The apparent weaker demand and the slowing imports in China have been the biggest drags on oil prices in recent months, often overshadowing tensions in the Middle East.
By Tsvetana Paraskova for Oilprice.com
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