Earnings from China’s state majors signal weak demand for oil imports

China’s biggest state-owned oil and gas corporations reported record profits this week, but top-performing upstream divisions masked weak refining businesses that reflected tepid demand for fuel in China.

China’s crude imports fell 2.4% between January and July compared to the same period in 2023. Oil imports in July fell 12% from June and % from July 2023, raising concerns about to the country’s economic health and future oil demand.

Earnings reports from China’s biggest oil and gas companies, Sinopec, PetroChina and CNOOC, showed outstanding profits from exploration and production and weaker refining. Sinopec, or China Petroleum and Chemical Corporation, as it is officially known, was the hardest hit because of the higher refining share of its assets.

Sinopec this weekend reported first-half net profit that rose 1.7 percent year-on-year to $5 billion (35.7 billion Chinese yuan). The higher gains were due to higher domestic crude oil and natural gas production and higher international oil prices.

But refining figures from Asia’s biggest refiner by capacity deteriorated compared with the first half of last year, reflecting weak demand from China, particularly for diesel, which has spooked markets this year.

Sinopec flagged “severe challenges from weak market demand and margin squeeze in certain products” in the first half of the year.

CNOOC and PetroChina this week reported record net income and operating income for the first half of 2024, respectively, as they boosted domestic oil and gas production.

Higher production in China, combined with weaker-than-expected domestic fuel demand, does not bode well for Chinese crude imports in the near term.

Moreover, China’s weak diesel demand is not only the result of the housing crisis and weak economy. It is also due to a structural change in transportation, as the continued shift to LNG-fueled trucks limits the use of diesel for transportation, slowing global oil demand growth.

By Tsvetana Paraskova for Oilprice.com

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