Sinopec weathers losses on crude

CHINA Petroleum & Chemical Corp, Asia's biggest refiner, may extend losses from processing oil unless the cost for a barrel falls below US$64, two company officials said.

Domestic fuel prices have been kept below global levels by the Chinese government, causing refining losses for China Petroleum, one of the officials told Bloomberg News in Shanghai, asking not to be identified because of company policy.

Sinopec, as China Petroleum is known, has recorded losses since July, after making profits in the first half, as crude prices soared to records in August.

China controls prices of diesel and gasoline to curb their impact on inflation, which climbed 5.6 percent in July, the highest in more than 10 years.

"Sinopec will continuously be pressured by crude costs as it's unlikely the government will raise fuel prices in the short term, given the nation's inflation rate," Zhang Guojun, an oil analyst with Pingan Securities Co, said by phone yesterday.

Benchmark oil prices in New York gained 10.4 percent in June and 11 percent in July. Prices have eased six percent since hitting a record of US$78.77 a barrel on August 1.

Crude for October delivery rose by 0.24 percent to US$74.23 a barrel in after-hours electronic trading on the New York Mercantile Exchange at 2:53pm Beijing time yesterday.

The stronger yuan has helped domestic oil refiners offset higher crude costs. The Chinese currency has advanced 3.5 percent against the US dollar this year amid speculation the government will tolerate further appreciation because of gains in the domestic stock market and the nation's strong economy.

The appreciation of the yuan and higher prices for naphtha and chemicals, raw materials for plastic carrier bags to synthetic fibers, have helped to increase the breakeven point for the refining business from US$60 a barrel last year, said a second company official.

PetroChina Co, the nation's largest oil company, can make a profit from refining with crude at US$65 a barrel, Zhang Hong, deputy chief economist of PetroChina Refinery & Marketing Co, said on June 30.

Sinopec is "working" to get a government subsidy for selling fuels below international prices, President Wang Tianpu said last week. The company received a one-off five-billion-yuan subsidy at the end of last year to help cover raw material costs.