China Petroleum and Chemical Corporation (Sinopec), the largest refiner in Asia, has confirmed market concerns with its first-half earnings report, revealing weak fuel demand in China.
Sinopec reported a 1.7% increase in net profit for the first half of the year, reaching $5 billion (35.7 billion Chinese yuan). This rise was driven by higher domestic production of crude oil and natural gas and increasing international oil prices. However, the company’s refining metrics deteriorated compared to the same period last year, reflecting ongoing concerns about low demand for diesel and other fuels in China.
Domestic consumption of natural gas increased by 10% year-on-year, but refined oil product consumption dropped by 0.5%, primarily due to lower diesel demand. Sinopec, with its significant refining operations, felt the impact of weaker demand more acutely than other Chinese state-owned energy companies.
Despite setting records in domestic oil and gas production—257.66 million barrels of oil equivalent, a 3.1% increase—Sinopec’s refining and chemicals divisions struggled. Crude oil production rose by 1.5% to 126.49 million barrels, and natural gas output grew by 6.0% to 700.57 billion cubic feet. However, these gains were partially offset by poor performance in refining and chemicals.
Sinopec acknowledged the “severe challenges” posed by weak market demand and narrowing margins for certain products. In July, the company had warned that its refining throughput had only increased by 0.1% due to high crude prices and weak domestic fuel demand.
The first-half report showed a 6.6% rise in gasoline production and a 15.2% increase in jet fuel output. However, diesel production fell by 8.8%, and light chemical feedstock production dropped by 7.4%, reflecting weaker demand amid China’s property crisis and slow economic growth.
Domestic sales of refined oil products fell by 2.5%, with retail sales of oil products down by 4.7%. In July, overall fuel production in China decreased by 6.1% compared to the previous year, marking the fourth consecutive monthly decline and indicating that weak demand persists.
Sinopec is addressing these challenges by expanding its battery charging and LNG fueling networks, with significant increases in charging volume and LNG vehicle operations.
China’s weak diesel demand is partly due to the ongoing property crisis and economic slowdown, but also because of a shift toward LNG-powered trucks, which is reducing diesel consumption. Jet fuel remains a bright spot, showing double-digit growth this year, but it is not enough to offset the decline in road transportation fuel demand.
The rebound in airline traffic has increased jet fuel demand, but jet fuel represents a smaller portion of China’s total fuel consumption compared to gasoline and diesel. Weaker overall oil demand and lower crude imports in China are reflecting the country’s slower economic growth and disappointing fuel demand.
These trends have significantly impacted oil prices in recent months, overshadowing other factors like Middle East tensions.