"Contrary to common belief, the sharp drop in oil price does not benefit refiners' earnings. And low demand forecasts mean margins aren't expanding."

A fall in crude prices, the raw material used to produce fuels including petrol and diesel, should typically reduce expenditure and raise profits for refiners. However, weak demand is driving down fuel prices and narrowing those margins.

Also, the lower oil price is cutting the value of stockpiles accumulated when the market was higher.

China Petroleum & Chemical Corp, Asia's biggest refiner, made about 9 per cent of its revenue in the six months ended June 30 from processing crude oil. PetroChina, the country's biggest oil and gas producer, had almost 8 per cent of sales from refining operations.

Along with CNOOC, the two companies are China's biggest oil producers and their upstream operations are getting hit by the plunge in crude. They are now set to lag regional rivals in making money from refining.

Some of the biggest refiners in Asia's most populous nations - China, India and Indonesia - are state run and have served government policy by capping the retail price of the oil they process. While that has kept inflation in check and fuel affordable for citizens, it has also crimped company earnings.

That mandate was upended in India over the weekend, after Prime Minister Narendra Modi took advantage of crude's slump to free diesel pricing from government control for the first time in a decade. Refiner Hindustan Petroleum surged 7.4 per cent in Mumbai, the steepest increase since May 16. Indian Oil Corp, the nation's biggest refiner, gained 3.8 per cent and Bharat Petroleum Corp 4.5 per cent.

In Asia's third-most populous nation, Indonesia, President Joko Widodo has pledged to raise fuel prices to help cut fuel subsidies. The country is competing with India and China to woo investors by curbing petroleum subsidies.

China National Petroleum Corp, PetroChina's parent, said last week it would have difficulty in meeting its profit targets this year because of crude oil's slump, citing high stockpiles. It said it expected oil prices to decline further this quarter.

CNPC's call on oil prices is echoed by Nomura International Hong Kong and UOB Kay Hian. Nomura said last week US-traded crude had the potential to drop below US$70 a barrel by the end of the year if Opec failed to reduce supply. The group is scheduled to meet on November 27 in Vienna to discuss production and prices.

West Texas Intermediate prices in New York, a US benchmark, have dropped 15 per cent this year as the nation increases oil output from shale deposits.

Falling prices could "crush Asian refiners' margins" if demand for oil remains weak, said Gordon Kwan, Nomura's head of regional oil and gas research.

UOB's Hong Kong-based analyst Yan Shi downgraded PetroChina's stock to sell from buy and its target price to HK$7 from HK$11.60. She kept Sinopec at hold and cut its target price 11 per cent to HK$6.60.

Oil demand growth in China, the world's second biggest consumer, is expected this year to be the weakest since 1990 as economic growth slows, Sanford C Bernstein analyst Oswald Clint wrote in a report.

To boost margins, refiners need to see crude oil prices stabilise at these levels and demand to strengthen, Suttikulpanich said.

Lower demand is narrowing margins across Asia. Profit from making diesel in Singapore, a regional benchmark, has averaged US$14.27 a barrel this month, compared with US$16.53 a barrel in October last year and US$18.20 a barrel in January 2014, according to data from PVM Oil Associates in London.

"There isn't any sign of demand recovery in Asia, with China continuing to be weak," said Dhaval Joshi, of Emkay Global in Mumbai. "It will take its toll on margins."