China Daily reported that Asia's largest refiner Sinopec incurred losses in its refining business in October because increases in domestic fuel prices haven't caught up with gains in crude costs.
The official with Sinopec who declined to be named said crude prices have seen rapid growth this month but the government made no changes in gasoline and diesel prices, which has caused the refining losses.
China raised domestic prices of gasoline and diesel three times between January and June compared with once in the Q3. Crude oil in New York has risen by around 80% this year.
Mr Qiu Xiaofeng analyst with China Merchants Securities said "On our calculation, it would be the third consecutive month that Sinopec refining business suffered a loss. He said that the two recent price hikes under the new refined oil pricing mechanism were smaller than expected.”
Mr Qiu said domestic fuel prices need to be raised by CNY 400 per tonne to CNY 500 per ton under the current crude price levels for Sinopec to incur no losses in its refining business.
Commenting on whether the company's refining business could make a profit in the fourth quarter, Mr Qiu said this still depends on how much the government would raise domestic fuel prices.
The gap between global oil prices and relatively low refined oil prices has long been a headache for domestic refiners. Last year when international oil prices rose to record highs of USD 147 per barrel, domestic refiners all made huge losses and many halted operations.
Mr Lin Boqiang a professor at Xiamen University said "Compared with last year, there is no doubt that Sinopec will see much better performance in its refining business this year because of a milder crude price. He said that the new mechanism in domestic oil pricing system adopted this year has prevented the company from making huge losses in its refining business.”
Mr Lin said but the company refining business may still be in the red.
In contrast with refining losses, market statistics showed that Sinopec processed 32.83 million tonnes of crude in September up by 14%YoY.
