Sinopec, PetroChina Fall After Government Sets $40 Oil Floor

Updated on
  • Seeking to avoid `prices that are too high or too low': NDRC
  • Fuel price cuts halted in December to curb demand, emissions

China’s biggest refiners fell in Hong Kong on Thursday after China rolled out a policy that won’t let fuel prices fall in line with crude below $40 a barrel.

China Petroleum & Chemical Corp., Asia’s biggest refiner known as Sinopec, dropped 4.9 percent to HK$4.06 at 9:57 a.m in Hong Kong, while PetroChina Co., the country’s second-biggest refiner, shed 3.2 percent to HK$4.31. Hong Kong’s benchmark Hang Seng Index dropped 1.8 percent.

The price of fuels such as gasoline and diesel won’t be adjusted as long as crude is below $40 a barrel, the National Development and Reform Commission, the country’s top economic planner, said in a statement Wednesday. Profits from fuel sales below the $40 level will go to a fund to promote energy conservation and security and improve fuel quality, according to the NDRC.

“Our scenarios presume that Sinopec will reflect the new policy in its income statement but with the NDRC mandating that the unrealized price adjustments be set aside in a risk reserve, this is uncertain,” Barclays Bank Plc’s Hong Kong-based analysts Somshankar Sinha and Qiyun Feng said in an e-mailed research note Thursday.

Price Cut Suspension

The decision this winter by President Xi Jinping’s government to suspend fuel price cuts amid oil’s slump, while the country’s biggest cities were shrouded in smog, was explained as an attempt to curb vehicle pollution. It’s also an effort to shield the country’s massive energy companies from the collapse in prices that has punished the global industry, according to Laban Yu, head of Asia oil and gas equities at Jefferies Group LLC in Hong Kong.

“China’s biggest oil companies are not equipped to operate and compete in a crude environment below $40 a barrel,” Yu said by phone on Wednesday. “From an energy security perspective, it makes sense for NDRC to set the floor.”

— With assistance by Sarah Chen, Guo Aibing, and Jing Yang

Before it's here, it's on the Bloomberg Terminal. LEARN MORE