The Country Caller takes a look at the declining profits of the big Chinese oil companies and their view on the future
The second quarter of the fiscal year 2016 has been a tough one for oil and gas majors. While many were betting on a crude oil recovery, prices failed to recover. Companies saw massive declines in profits and cost cutting techniques, even as asset divestitures and employee layoffs remained the norm.
The losses from the declining oil prices have now extended to Asia and slithered to one of the world’s largest economies. China’s China Petroleum & Chemical Corp (ADR) (NYSE:SNP), the world’s biggest refiner, became the latest victim as its net income plunged to $3 billion representing a 22% decline when compared to the first half of the last year. Revenues also crashed 16% to 879.2 Yuan.
During a period of weak crude oil prices, the exploration and production business segments continue to suffer while the downstream segment of refining tend to gain. The same was the case with Sinopec, which saw its loss aggravate from 1.8 billion Yuan last year to 21.9 billion Yuan in the current year. The downstream segment however saw an increase in revenues from 15.3 billion Yuan to 32.6 billion Yuan.
Sinopec was not the only company that suffered the losses. Petrochina Company Limited (ADR) (NYSE:PTR), which is China’s largest oil and gas producer, saw its net income decline by 98% to 531 million Yuan. Cnooc, another major oil producer, also saw its net profit drop by half as profit fell from 14.7 million yuan from last year to 7.74 million Yuan in the latest period.
Despite bullish sentiments coming in from analysts in the US, these companies believe that an immediate recovery is not on the cards any time soon. As reported by Bloomberg, PetroChina said: “In the second half of 2016, the recovery of the global economy will remain weak and financial markets will tend to be unstable due to significant political events including Brexit.” The company further said: “The overall supply in the international oil market will continue to be sufficient and the global oil price is likely to keep fluctuating at a low level.”