Sinopec Profit Drops as Oil Slump Counters Higher Refining

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China Petroleum & Chemical Corp., Asia’s biggest oil refiner, posted a 22 percent decline in profit for the first half of the year as the slump in prices outweighed the benefit of cheaper crude to its refining business.

Net income dropped to 25.4 billion yuan ($4 billion), or 0.21 yuan a share, from 32.5 billion yuan, or 0.28 yuan, a year earlier, the Beijing-based company known as Sinopec said in a statement to the Hong Kong stock exchange Wednesday.

Sinopec sought to counter the fall in crude prices by increasing oil refining, which along with marketing accounted for half of the company’s revenue last year. The company plans to further raise refinery runs for the rest of the year and reverse a decline in crude output.

“It’s been a roller-coaster ride for Sinopec in the first half,” said Laban Yu, a Hong Kong-based analyst at Jefferies Group LLC. “It lost money in refining in the first quarter because they had to use higher priced inventory bought last year, and then turned to profit in the second quarter because they were able to consume cheaper crude.”

Brent averaged about $63.50 a barrel last quarter, up 15 percent from the previous three months and down 46 percent from the same period in 2014. The benchmark for more than half the world’s crude oil fell 7 cents to settle at $43.14 a barrel in London.

Refining Boon

While punishing explorers and producers, oil’s collapse was a brief boon to the global refiners, particularly in the April-June period. India’s Reliance Industries Ltd., operator of the world’s biggest oil-processing complex, said last month profit advanced 12 percent as margins during the period rose to the highest in six years.

Sinopec’s operating profit from refining rose to 15.3 billion yuan from 9.8 billion yuan the same period a year ago, while chemicals swung to a 10.1 billion yuan profit from a 3.97 billion yuan loss. Exploration and production posted a loss of 1.8 billion yuan in the first six months, compared with a 28.3 billion yuan gain a year ago.

“Upstream remains very weak,” said Neil Beveridge, an analyst at Sanford C. Bernstein & Co. in Hong Kong.

Oil production during the first half of the year fell 2.1 percent to 174 million barrels. The company is aiming to increase that to 177 million in the second half, it said.

Sinopec will raise refining throughput to 123 million tons in the second half of the year, from 119 million in the first six months.

China’s refiners processed about 10.3 million barrels a day last month, according to the Beijing-based National Bureau of Statistics. That’s 4.3 percent higher than a year earlier and down slightly from a record 10.59 million barrels a day in June.

— With assistance by Guo Aibing, and Sarah Chen

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