Sinopec jumps on fuel price boost
Shares of China Petroleum & Chemical Corp (Sinopec), the nation's biggest refiner, jumped as much as 10.63 per cent yesterday after high oil prices and shortages in major cities forced Beijing to unexpectedly raise fuel prices by almost 10 per cent.
Although the price rise will only limit bleeding at mainland companies' refining operations, it helped Sinopec's Hong Kong-traded shares skyrocket to an intraday high of HK$12.90 before closing at HK$12.76 after a 9.43 per cent gain. Its Shanghai-listed A shares gained 7.32 per cent to end at 27.70 yuan.
The fuel price increase and record crude oil prices that surpassed US$96 a barrel for the first time, also caused shares of PetroChina - the nation's biggest oil producer and second-biggest oil refiner - to jump as much as 4.38 per cent to a fresh high of HK$20.25. The gain narrowed to 2.58 per cent to close at HK$19.90.
CNOOC, the nation's third-biggest oil producer, advanced a modest 1.36 per cent to HK$16.38.
In an unexpected move on Wednesday night, the National Development and Reform Commission raised the retail price of petrol by 9.1 per cent to 5,980 yuan a tonne and diesel by 9.96 per cent to 5,520 yuan a tonne. The increases, effective yesterday, were an 'urgent step' to help the nation's oil refiners cover rising costs, the government said.
Soaring crude prices have resulted in losses for the mainland's oil refining industry, squeezed by stringent government price controls on refined oil products.
Many loss-making small independent refiners, which account for 12 to 19 per cent of the mainland's petrol and diesel production, have collapsed resulting in shortages at pumps in a number of cities.
'The widespread oil product shortages apparently forced the Premier Wen Jiabao to blink,' JP Morgan's China chief economist Frank Gong wrote in a research note. 'The move apparently was forced on the authority after a big lesson: they cannot time the market.'
The increase, the first since May last year, took the market by surprise, given a consensus view that refined product prices would not rise before the end of the year for fear that high fuel prices would stoke inflation.
Despite the rise, Goldman Sachs said domestic refining margins would remain below break-even levels this month and if crude oil prices stayed around US$90 a barrel, refiners will lose US$3 to US$5 for each barrel of crude oil they refined.