Tag: Shanghai Market

Overall, the sector is still undervalued but our preferred pick is CNOOC, given its upstream focus and cost efficiency with all-in cost of below USD 30 per barrel. Higher oil prices should be positive for oil producers, this could be negative for PetroChina’s and Sinopec’s downstream operations, especially if the government decides to delay price hikes for refined products to prevent inflation. The better earnings are widely expected by the market, given that the weak results in 2020 were due to lower oil prices and COVID-19 disruptions. PetroChina and Sinopec attributed the improvement to recovery in prices and demand for oil and gas products, as well as stringent cost controls.

Oil prices are likely to remain elevated (above midcycle price of USD 60 per barrel for Brent) for at least another 6-12 months, in our view, as supply/demand dynamics support current price levels. All is going according to plan with a continued vaccine rollout, decline in infections, and recovery in demand. On the supply side, an accelerated return of Iran volumes continues to pose a risk, but we still see the situation as manageable.

Company Profile

China Petroleum & Chemical, or Sinopec, is one of China’s national oil companies and one of Asian’s largest integrated oil companies in terms of revenue. Its income is derived primarily from refining and marketing of oil products and petrochemical production. Sinopec has China’s largest petrol station network with over 30,000 stations and enjoys significant market share in petrochemicals. Established in 2000 by China Petrochemical Corporation, a state-owned enterprise and majority shareholder, the company also owns oil and gas assets in Shandong and Sichuan provinces. It has a smaller global upstream presence than peers PetroChina and CNOOC.

(Source: Morningstar)

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