The refining profit in the first half of 2009 has increased to a record level, PetroChina Company, Ltd., the largest integrated oil company in China said on Wednesday, without providing any specific numbers.
PetroChina announced on Wednesday that refining profit for the first half of 2009 is the highest since PetroChina's Hong Kong listing in 2000, management, but declined to provide the details.
The increase was primarily due to the measures taken by the Chinese Government to increase the fuel prices three times year-to-date, Zacks Investment Research wrote in a report. Despite lower processing volumes and operating rates cut, the refining profit was up on the back of increased refining margins.
Refiners in China had been witnessing a weakness in refining margins due to an increase in crude prices and the government's conservative role in refined product (particularly gasoline and diesel) pricing. According to the report, the government caps the prices of refined products to control inflation in China.
These price regulations -- which did not allow the companies to pass on high refining costs to consumers -- hurt those with significant refining businesses. PetroChina and Sinopec, as the report said, are two such companies.
While PetroChina's overall profit for the first half of 2008 was 53.6 billion yuan (nearly $7.8 billion), its refining division had suffered a loss of 83 billion yuan (nearly $12.1 billion).
However, this scenario is changing with increasing refining margins.
PetroChina raised its refining business budget for 2009 by 36% to 27.5 billion yuan (nearly $4 billion), while it turned down the exploration and production spending by 15% to 133.8 billion yuan (nearly $19.6 billion).
The company's growth prospects are particularly attractive in the downstream and natural gas sectors, Zacks Investment Research said in the report. Strong growth in China's middle class and in automobile ownership is expected to fuel consumption of refined petroleum products.
However, the report also noted rising costs and special levies on domestic crude oil sales as well as downstream-centric assets portfolio remain concerns despite the optimistic refining backdrop .