Sinopec, PetroChina Hit Hard by China’s Slowing Oil Demand

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China’s two largest refiners, Sinopec and PetroChina, have reported steep declines in refining output as domestic oil demand weakened further in the third quarter.

Lower refining and chemicals demand contributed to a sharp drop in Sinopec’s third-quarter profit to 8.03 billion yuan ($1.13 billion) from a year ago. PetroChina, whose parent company, China National Petroleum Corp., is the country’s largest upstream producer, fared better thanks to the performance of its upstream and gas sales segments. Still, its profit slid 5.3% to 43.91 billion yuan ($6.15 billion).

China’s oil demand fell 264,000 barrels per day to 15.52 million b/d during the quarter versus the previous three months and was 362,000 b/d lower year on year, Energy Intelligence estimates, amid sluggish economic growth.

Diesel Struggles

Both refiners cut their refining output as demand waned for China’s most used refined product, diesel. The ongoing real estate crisis that has hit the construction sector has weighed on demand for several years. Competition has also emerged from electric vehicles (EVs) and LNG-fueled trucks.

Sinopec cut diesel production by 14.2% from a year ago, and by 5% from the second quarter, to 1.13 million b/d. PetroChina, whose refining throughput grew in the first half of this year, also responded to lower demand, cutting diesel output by over 16% year on year during the quarter — and overall refining output by 7.5% to 3.78 million b/d.

Diesel demand could improve this quarter, a senior Sinopec official said during an earnings call on Tuesday.

“LNG replacement [of gasoil demand] will slow in the fourth quarter,” he said, adding that LNG is only competitive as a fuel against diesel so long as the price stands at around 80% of the diesel price. This is the “critical point.”

Still, stronger diesel demand this quarter is unlikely to change the product’s trajectory. Sinopec has repeatedly said that demand peaked last year.

Gasoline demand may also be about to peak in China. Sinopec’s gasoline output fell by 0.35% in the third quarter from a year ago, although it rose 3.5% from the second quarter, thanks to the summer vacation. EV sales exceeded internal combustion engine car sales in China throughout the third quarter and look on track to reach a penetration rate of close to 50% this year.

PetroChina slashed gasoline output by almost 13% from a year ago to 1.1 million b/d, while Sinopec produced 1.55 million b/d of gasoline in the last quarter.

Both refining giants have adjusted their gasoil-gasoline ratio to produce more gasoline and less diesel in response to the changing market conditions.

Tough Time for Chemicals

Sinopec’s third-quarter ethylene output slumped to 3.55 million tons, down 6.4% from a year ago, prompting another quarter of losses in the chemicals segment. The refiner has moved aggressively to upgrade its refineries and develop integrated complexes since 2020, but rising competition from new large private refiners and chemicals companies has flooded the Chinese market with chemicals.

PetroChina, which operates a smaller chemicals segment including two crackers fed with cheap domestic ethane, increased its ethylene output by 14.65% in the third quarter to 1.84 million tons.

Sinopec expects Beijing’s recent stimulus measures announced since September to help drive up demand for chemicals — especially a trade-in program to encourage the purchase of new home appliances, a company official said on the earnings call.

But new refining and chemicals capacity will be added this quarter and in the next quarter, the official added. “Growth margins will improve but will still struggle for some time.”

The post Sinopec, PetroChina Hit Hard by China’s Slowing Oil Demand appeared first on Energy News Beat.

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