China Petroleum & Chemical (Sinopec), one of China’s three oil giants, forecasted on Monday that the price of benchmark Brent Crude Oil will fluctuate around a low level of $42 a barrel in 2020. Sinopec said the low price scenario might last for a longer-than-expected period.
Crude oil prices have fallen by more than 50 percent in the past month. Brent — the international benchmark — once lost nearly 7 percent to $23.03 a barrel on Monday, hitting its lowest level in 28 years. It has fallen due to the novel coronavirus pandemic and the Saudi Arabia-Russia price war.
Demand destruction and high levels of inventory have brought challenges to Sinopec’s production and operations in the first quarter of the year
Zhang Yuzhuo
chairman of Sinopec
Demand destruction and high levels of inventory have brought challenges to Sinopec’s production and operations in the first quarter of the year, company chairman Zhang Yuzhuo told the media.
He said the oil price slump could make the company’s coal chemical projects uncompetitive.
According to Zhang, if oil prices remain at $60 per barrel then coal chemical projects could offer a reasonable return. But if the oil price falls below $35 per barrel, these projects will lose competitiveness.
In this way, the company which has three coal chemical projects will strive to lower costs and plan for future business, explained Zhang.
Acknowledging the fall in demand, Sinopec expects its full-year refining runs in 2020 will be lower than last year.
Sinopec lowered utilization rates at its crude oil refineries to 66 percent in February amid the coronavirus outbreak. The average utilization rate was 91.3 percent in 2019.
“Due to the impact of the first and second quarters, our expectations of full year consumption of oil products will be negative growth,” said Ling Yiqing, vice-president of Sinopec.
He noted the demand destruction will last for the first half of the year, but it is expected that refined oil consumption will be back to normal levels in the third and fourth quarters.
Sinopec posted an 8.7 percent drop in net profit to 57.59 billion yuan in 2019. Shares in Sinopec rose 1.1 percent to HK$3.68 on Monday after it released its annual results.
The Hang Seng Index ended the day at 23,175.11, a drop of 1.32 percent or 309.17 points. Market turnover on the mainboard contracted to HK$107.94 billion, the lowest level since Feb 21.
