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Sinopec may not receive subsidies in 4th quarter

By Tu Lei (chinadaily.com.cn)
Updated: 2008-10-15 17:04

Sources said China Petroleum and Chemical Corporation (Sinopec), China's largest oil refiner, may not get government oil subsidies in the fourth quarter of this year due to the falling price of oil, according to China Business News.

At Sinopec's results announcement in August, a senior official said the detail of subsidies will be decided by global oil price trend and refinery losses.

In the past, Chinese oil refiners have suffered losses as they have been unable to pass on surging international crude oil prices to customers because of the government's control over domestic prices of gasoline and other refined oil products.

But although crude oil prices in the international market had risen to all-time high of $147 per barrel in the second quarter this year, they plunged to $85 per barrel last week.

They have now plummeted even further, to a 13-month low of $77.70 per barrel after losing $8.89 a barrel last Friday on the New York Mercantile Exchange, the second biggest decline ever.

Sinopec Shanghai Gao Qiao Petrochemical Corporation said it will take one or two months for Sinopec to break free from overall losses even if the falling oil price covers chemical products costs, or is in the black.

A source in the industry said there is no saying whether the Ministry of Finance (MOF) will continue to subsidize Sinopec, for crude oil importing is no longer in the red, but he said the subsidies may be continued if the oil price rebounds or oil products' prices do not rise.

Interim results announcements by Sinopec and China National Petroleum Corporation said they received 33.4 billion yuan ($4.88 billion) and 4.57 billion yuan in oil subsidies in the first half of this year respectively.

Sinopec board chairman Su Shulin said in August that Sinopec received subsidies in the third quarter. Qiu Xiaofeng, a researcher of China Merchants Securities, estimated the subsidy was about 13 billion yuan.

Sinopec said it received 7.1 billion yuan in oil subsidies in April, following the 5 billion yuan in government subsidies in 2006, 4.9 billion yuan in 2007, and 7.4 billion yuan in the first quarter of this year.

The move was part of the government's efforts to compensate the country's big oil refiners and to mobilize them to produce.

A report from Goldman Sachs said the oil price trend will be complex, due to the current financial crisis. The price of West Texas Intermediate in the coming three to six months is expected to be $70.5 to $77 per barrel.