China Petroleum & Chemical Corp, or Sinopec, processed 5.3 per cent more crude oil in the first half of this year as China's economic growth boosted demand.

Oil refining at Sinopec, Asia's largest oil refiner, rose to 71.7 million metric tons (527 million barrels), the Beijing-based company said on its website yesterday. Crude oil production rose 3.1 per cent and natural gas output gained 20 per cent.

Sinopec supplies about 75 per cent of the fuels sold in China, where the economy expanded 10.9 per cent in the first half, the fastest pace in more than a decade. China's curbs on fuel prices, aimed at shielding consumers and manufacturers from higher energy bills, may cause Sinopec further refining losses because of record crude oil costs, said analyst Gordon Kwan.

"We still expect Sinopec to be under near-term pressure until China implements the next hike in domestic refined product prices," Kwan, who heads China oil and gas research at CLSA Ltd in Hong Kong, wrote in a research note yesterday. He expects "relatively more refining losses for Sinopec in the upcoming results announcement" than for rival PetroChina Co.

Sinopec shares fell for a fourth day, dropping 1.8 per cent to HK$4.15 (53 US cents) at 3:12 pm. The stock has gained 7.8 per cent this year, lagging behind PetroChina's 31 per cent advance.

Oil output rose to 140.9 million barrels and natural gas production reached 126.2 billion cubic feet, Sinopec said. Diesel output climbed 7.6 per cent to 28.3 million tons, while gasoline output declined 0.8 per cent to 11.2 million tons. Kerosene production dropped 6.2 per cent to 3.2 million tons.

Sinopec's domestic sales of fuels including gasoline and diesel rose 7 per cent to 54.3 million tons in the six months, the company said. Retail sales increased 19.5 per cent to 35.3 million tons. The company didn't provide quarterly figures.

Production of ethylene rose 24.5 per cent to 3 million tons, Sinopec said. Ethylene is a chemical raw material used to make plastics.

Sinopec's first-quarter profit fell 3.6 per cent to 9.29 billion yuan (US$1.16 billion) as it recorded an operating loss of 7.88 billion yuan (US$985 million) at its refining division, compared with a profit of 1.67 billion yuan (US$208.7 million) a year earlier, the company said on April 28.

"High oil prices will have a negative impact on downstream companies like Sinopec," said Lei Wang, who helps oversee about US$20 billion, including Sinopec shares, at Thornburg Investment Management Inc in Santa Fe, New Mexico. "The market will be disappointed if the government doesn't approve further price increases or provide some sort of subsidy."

China on May 24 increased fuel prices for the second time this year to help refiners cover the rising cost of crude oil. Gasoline prices rose by 10.6 per cent, diesel prices by 12.3 per cent, and jet fuel by 10.3 per cent. "It's not enough yet" to cover higher crude oil costs, Sinopec Chairman Chen Tonghai said in Beijing later that day.

Sinopec increased oil production at a faster pace in the first half than bigger rival PetroChina. Oil output increased 1.8 per cent to 419.1 million barrels, PetroChina said on Monday. Natural gas output surged 31 per cent to 684.7 billion cubic feet at China's biggest oil company.

PetroChina's oil processing rose 3.5 per cent in the first half to 392.6 million barrels, the company said.

Crude oil prices in New York have climbed 32 per cent in the past year and reached a record US$78.40 on July 14, the highest since New York Mercantile Exchange trading began in 1983.

China may consume 5.5 per cent more crude oil next year, the International Energy Agency said July 12, after an estimated increase of 6.1 per cent in 2006. Demand will rise to 7.4 million barrels a day in 2007, or 390,000 barrels a day more than 2006, the IEA, said in its monthly oil market report.

Source: China Daily