China Petroleum and Chemical Corporation (NYSE:SNP), or Sinopec, reported on Sunday a first-half net profit down by 21.6 percent on the year as its refining business was not enough to offset the low crude prices.
Sinopec booked a net profit of US$2.982 billion (19.9 billion yuan) for January to June, and its operating profit dropped 13.3 percent to US$5.259 billion (35.1 billion yuan).
Crude oil production fell 11.43 percent, with domestic crude production at 128.38 million barrels and overseas crude production at 25.79 million barrels. In the second half of 2016, Sinopec plans to slightly cut on crude production and produce 147 million barrels of crude oil, including 125 million barrels of domestic production and overseas production of 22 million barrels.
In order to address the challenge of low oil prices, Sinopec tightened cost discipline, cut high-cost oil production, and increased natural gas production.
Refinery throughput dropped 2.51 percent annually to 115.9 million tons in the first half. The corporation adjusted its product mix in response to the sharp increase of throughput from independent refineries and ample market supply.
Sinopec said, however, that it plans to process 120 million tons of crude in the second half of this year, and some analysts reckon that refining spared the corporation a steeper drop in profits in the first half.
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Commenting for Bloomberg, Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said in a note on Monday: "Sinopec delivered better than expected first-half 2016 results as refining margins continued to benefit the group. Upstream remains a disaster."
Looking ahead, Sinopec said that China's economic growth is expected steady in the second half this year, which will drive domestic demand growth for refined oil products and petrochemical products. However, the company warned that global oil oversupply is likely to continue, and crude prices will remain at a low level.
Last week, another major Chinese corporation in the oil and gas industry, Cnooc Ltd (NYSE:CEO), reported its first-ever net loss for a half-year.
By Tsvetana Paraskova for Oilprice.com
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