Fitch Ratings expects Chinese national oil companies’ (NOC) refining and marketing profit to increase yoy in 2H23, driven by improving domestic demand in comparison with 2H22, especially travel demand, and stronger export volume with a relatively decent crack spread. However, cost pass-through will be less than full if crude prices are still above USD80/barrel, and the broader economic recovery could further soften, limiting the growth momentum of downstream profits.

The refining segment has recovered to some extent in both supply and demand. Throughput saw strong growth of 11.9% yoy in 8M23. Diesel, gasoline and jet fuel consumption rebounded to pre-Covid levels. Diesel growth, despite the moderation from a high base in 2022, remains resilient.

Gas apparent consumption grew by 7.4% yoy in 8M23, missing its high-single-digit growth expectation. This was attributable to a warmer winter, the lingering impact of the pandemic in 1Q23 and the overall economic rebound falling short of market expectations.

Natural gas import volume increased due to demand recovery and competitive imported liquefied natural gas prices. Fitch foresees lower gas import losses in 2023, benefitting from declining import costs and higher selling prices. China is also establishing a more transparent cost pass-through mechanism for gas cost, which could improve gas sales profit volatility for the NOCs.

We expect the improvement in refining and lower gas import losses to help strengthen the financial profiles of China Petroleum & Chemical Corporation (Sinopec) (A+/Stable, Standalone Credit Profile (SCP): a-), PetroChina Company Limited (A+/Stable, SCP: aa-) and its parent China National Petroleum Corporation (A+/Stable, SCP: aa-). The strong performance of CNOOC Limited (A+/Stable, SCP: a), a purely upstream company, continued on supportive oil prices and solid outputs.
Source: Fitch Ratings