China Petroleum and Chemical Corp (Sinopec Corp), the country's second largest integrated oil company, posted a 30 percent fall in fourth-quarter net profit on Sunday, missing forecasts, as big losses at its refining arm offset upstream gains.
Sinopec , Asia's largest refiner, saw heavy refining losses last year as increases in domestic prices for oil products failed to keep pace with strong rises in international crude prices.
"We estimate that in 2012 the price of international crude oil will generally fluctuate in a high range due to tight geopolitical situation and other factors," the company said its annual report.
Sinopec's profitability may have improved slightly after the Chinese government hiked domestic gasoline and diesel retail ceiling prices by 6-7 percent from March 20, and raised the threshold of windfall tax on crude oil production from $40 per barrel to $55 per barrel.
However, its earnings would still largely hinge on international crude prices, which are being pushed up by ongoing tensions between Iran and the West over its disputed nuclear programme, analysts say.
China's fuel price hikes often come smaller and later than required under its pricing formula due to inflation concerns, leaving refiners saddled with mounting losses.
Chinese oil firms make a profit on oil and gas production, fuel sales and chemical businesses but their refineries bear the brunt of losses caused by government price controls.
Sinopec's refining losses amounted to 37.6 billion yuan in 2011 versus an operating profit of 14.9 billion yuan in 2010. Its upstream exploration and production division realised an operating profit of 71.2 billion yuan last year, up from 46.7 billion yuan in 2010, thanks to stronger crude oil prices.
Its oil and gas output edged up 1.6 percent year on year to 407.91 million barrels of oil equivalents (BOEs) in 2011, with crude production falling 1.9 percent and natural gas output rising 17.1 percent. For 2012, it plans to produce 326.52 million tonnes of crude oil and 582.6 billion cubic feet of natural gas.
The company processed 217 million tonnes of crude oil last year, up 3 percent year on year. Sinopec said it aims to process 225 million tonnes of crude this year. Unlike its domestic peers PetroChina and CNOOC , which derive most of or all of their revenue from exploration and production, Sinopec is heavily focused on the downstream refining segment.
Sinopec is expected to receive a gradual injection of overseas producing assets from its parent Sinopec Group, and the move should benefit Sinopec Corp shareholders in the long run, analysts say.
"Sinopec Corp is likely to gradually inherit a more geographically diversified upstream energy portfolio, increasingly more leveraged to oil with greater exploration upside," Barclays Capital said in a report this month. "An increased resource base for Sinopec Corp is likely to improve or sustain production growth in the long term," the report said.