Divergent Segment Performance in China’s Oil and Gas Sector
Fitch Ratings-Hong Kong/Shanghai-25 August 2021: China’s oil and gas industry saw a growth recovery in upstream production, rebounding refining utilisation and a fast rise in gas consumption and imports during 1H21. The oil price rally will support upstream operations’ revenue and profitability, but press refining and gas margins in 2H21, says Fitch Ratings.
Fitch expects national oil companies’ (NOC) 2H21 production to stay steady on higher upstream capex and segment profitability, which should improve with higher volume and prices. China’s gas production rose by 11.1% yoy during 1H21, while oil production was up by 2.2% yoy, as NOCs accelerated exploration and production.
We expect domestic refining oversupply to continue and the segment margin to decline in 2H21. Refining production and fuel demand had recovered toward pre-pandemic levels in 1H21, but we expect the market will continue to see excess supply from new capacities coming on stream and state refineries completing overhauls. Exports will not help to absorb the excess supply, as the second batch of export quota was lowered substantially from the first batch.
Source: Fitch Ratings