Chinese Refining Giant Sinopec to Maintain Steady Output Amidst Recovering Fuel Demand

Sinopec Corp, the behemoth of the Chinese refining industry, is gearing up to keep its refinery output stable during the latter half of 2023, anticipating a rebound in domestic fuel demand.

This decision comes on the heels of reporting a 20% decline in interim profits due to the dip in crude oil prices.

As the world’s largest refiner in terms of capacity, Sinopec has revealed its plan to process 127 million metric tons of crude oil, equivalent to approximately 5.04 million barrels per day, from July through December. This maintains a course close to the 126.54 million tons processed in the initial half of the year, as disclosed in a stock filing on Sunday.

“The Chinese economy is expected to continue its recovery. Domestic demand for refined fuel is on an upswing, while natural gas demand is poised for sustained growth, and the chemical sector is showing signs of gradual rebound,” stated Sinopec.

This strategy would culminate in an annual throughput of 253.5 million tons for 2023, marking a noteworthy growth of 4.7% compared to 2022, according to Reuters calculations based on company data.

Sinopec reported a 20.1% dip in interim net profit for the first half of the year in comparison to the same period in 2022, amounting to 35.11 billion yuan ($4.82 billion), primarily due to lower crude prices. This is despite the company’s increased refinery output and growth in fuel sales.

Revenues for the first six months experienced a slight 1.1% decline, totaling 1.59 trillion yuan. Nonetheless, a notable 18.5% surge was recorded in total domestic and overseas refined fuel sales, reaching 116.6 million tons.

China’s fuel demand showcased a steady recovery during the second quarter, following a 6.7% year-on-year increase in the first three months. Notably, gasoline and aviation fuel led the resurgence as travel activities rebounded.

Sinopec disclosed that its first-half domestic fuel sales soared by 17.9% compared to the previous year, reaching 92.47 million tons.

On the flip side, the demand for diesel fuel remained under pressure due to challenges faced by the property sector and declining merchandise exports, which consequently impacted trucking.

Chinese refiners, including Sinopec, benefitted from cost-effective crude oil supplies from Iran, Venezuela, and Russia. Western sanctions compelled these producers to sell oil at substantial discounts to ensure continuous revenue generation.

Sinopec, unlike some of its state counterparts, actively incorporated Russian oil supplies, as reported by traders.

During the first half of the year, Sinopec managed to produce 139.68 million barrels of crude oil, reflecting a marginal year-on-year increase of 0.02%. Meanwhile, its natural gas output surged by 7.6% to reach 660.88 billion cubic feet (18.714 billion cubic meters).

The refining margin for the company was 354 yuan ($48.57) per ton during the first half of the year, marking a 33.6% drop from the previous year.

Sinopec is set to allocate a capital spending budget of 104 billion yuan for the second half of the year, a substantial 38.7% increase from the first half. These funds will be channeled into oil and gas projects such as Tahe in Xinjiang, Weirong in Sichuan, and refinery expansion efforts in Zhenhai.