Persistent tensions in the Middle East and a sharp rise in international crude prices have significantly increased cost pressures for Asian refineries. As the world's largest refining company and second-largest chemical producer, China Petroleum & Chemical Corporation (Sinopec) (600028.SH/00386.HK) is under close market scrutiny regarding its strategies to navigate the current wave of oil price shocks. At the 2025 results conference held on March 23, Wan Tao, a Director and President of Sinopec, stated that geopolitical conflicts in the Middle East are significantly impacting the global trade landscape. Specifically, the disruption of navigation through the Strait of Hormuz has directly affected international oil and gas trade, posing substantial challenges to the company's production and operations. Factors such as the sharp increase in crude oil prices, tight import crude resources, and high freight costs are creating significant operational difficulties for the company's refining and chemical businesses. The sales of refined oil products have remained generally stable, while the upstream business can achieve favorable results under the current oil price conditions. Wan Tao emphasized that, based on current assessments, the company's crude oil and refined product inventories are sufficient to ensure stable production and operations. He stated, "We will strengthen market analysis and dynamically optimize our production and operational plans to meet domestic market demand and maintain stability. If the Middle East geopolitical conflicts persist for an extended period, they will pose major challenges to our refining and chemical operations. The company has already prepared multiple contingency plans to address challenges under different scenarios." Data obtained from the global commodity market information service provider ICIS indicates that although China's crude oil inventories remain high, concerns over potential supply disruptions have intensified due to the ongoing conflict and unresolved risks in the Strait of Hormuz. Domestic refineries have begun adjusting their operational loads. In the first half of March, the utilization rate of major refineries was between 80% and 85%, while independent refineries in Shandong operated at 55% to 60% capacity. Sinopec has already reduced its March processing volume by approximately 10% (about 2.2 million tonnes), with some refineries in East China starting to lower their operational rates. High oil prices combined with elevated VLCC freight costs are continuously driving up the cost of newly procured crude oil. If these costs cannot be effectively passed downstream, refineries reliant on imported crude may face further pressure to reduce operational rates. In terms of product structure, domestic refineries will prioritize the production of refined oil products, potentially leading to a relative contraction in the output of chemical feedstocks. At the results conference, Hou Qijun, Chairman of Sinopec, noted that since the escalation of Middle East geopolitical conflicts, the company has been closely monitoring market developments and promptly optimizing facility utilization rates to maintain overall operational stability and meet domestic market demand for oil products. Regarding the impact of damage to Qatar's LNG facilities and reduced exports, Hou Qijun stated that the short-term supply disruption of Middle East LNG resources has a relatively limited effect on the company. Sinopec will continue to intensify efforts to increase natural gas production, diversify natural gas resource channels, closely track market conditions, and promptly adjust operational strategies to ensure the stable operation of the entire natural gas industry chain and guarantee a stable market supply. In 2025, Sinopec reported a net profit attributable to shareholders of 31.809 billion yuan, a decrease of 36.8% year-on-year. By segment, the operating profit of the Exploration and Production segment fell 19.2% year-on-year to 45.5 billion yuan. The Refining segment's operating profit increased by 40.7% year-on-year to 9.4 billion yuan. The Marketing and Distribution segment's operating profit decreased by 46.5% year-on-year to 10 billion yuan, affected by the accelerated substitution of new energy domestically and inventory-related losses due to falling oil prices. The Chemical segment reported an operating loss of 14.6 billion yuan, a widening loss compared to the previous year, impacted by the rapid release of new production capacity, narrowing chemical product margins, and impairment losses on some facilities. Hou Qijun stated that domestic demand for chemical products is expected to continue growing this year. However, with the ongoing release of new domestic production capacity, structural oversupply pressures in the chemical market persist. Coupled with significant price increases for oil and naphtha due to Middle East geopolitical conflicts, chemical margins are under considerable pressure. The company will enhance its analysis of international situations and market conditions, respond quickly, and dynamically adjust production and operational plans. It will optimize facility utilization rates on a case-by-case basis, adjust product structures, and maintain stable and orderly operations. Hou Qijun also mentioned that Sinopec is accelerating the development of its hydrogen energy business as a key component of its new energy strategy. The company remains committed to its goal of becoming "China's leading hydrogen energy company" during the 15th Five-Year Plan period.
Comments