China Petroleum & Chemical Corp, the world’s biggest oil refiner, posted a 22 per cent decline in profit for the first half of the year as oil’s collapse overpowered the boost from cheaper crude used to make fuels and chemicals.

Net income dropped to 19.9 billion yuan ($3 billion), the Beijing-based company known as Sinopec said in a statement to the Shanghai Stock Exchange on Sunday. Revenue slumped 37 per cent to 879.2 billion yuan.

Sinopec is feeling the pinch of lower oil prices.

One of China’s so-called Big Three oil companies, Sinopec’s earnings compare with a 98 per cent profit drop by rival PetroChina Co, the country’s biggest producer, and the first-ever half-year loss by Cnooc Ltd, its largest offshore explorer.

Oil refiners typically gain when crude slumps since they benefit from cheaper supply costs, though Sinopec is still vulnerable to the price collapse as it’s the country’s third-biggest oil and gas producer. Brent crude, the global benchmark, averaged about $41 a barrel during the first half of the year, down roughly 30 per cent from the same period in 2015.

Crude production in the first half of the year dropped 11.4 per cent to 154.2 million barrels, the company said in the statement, while natural gas output rose 10 per cent to 388.7 billion cubic feet. Realised price for crude oil fell almost 26 per cent to 1596 yuan a tonne in the period, while that for natural gas slid 19 per cent to 1267 yuan per thousand cubic metres.

In the second half, Sinopec expects crude production at 147 million barrels and natural gas output at 421.2 billion cubic feet.

Sinopec will raise refining throughput to 120 million tonnes in the second half of the year, from 115.9 million in the first six months, the company said.

Government boost

China’s oil refiners earlier this year got a boost from a government policy that halts retail fuel price adjustments when oil falls below $40 a barrel, putting a floor under petrol and diesel prices while crude continued to drop. The rule boosted margins during Sinopec’s first quarter, when net income tripled from a year ago to 6.66 billion yuan.

The nation’s refiners processed a record amount in the first half of 2015 as they capitalised on oil’s drop to a 12-year low and as independent refiners took advantage of looser restrictions on how they source crude and sell fuels.

Refinery runs averaged 10.7 million barrels a day last month, slipping 2.7 per cent from June’s record 11 million, as plants shut for seasonal maintenance.

Profits from fuel making have started falling at integrated refiners from Exxon Mobil Corp to Royal Dutch Shell Plc as demand growth slows.

Global refining margins averaged $13.80 a barrel in the second-quarter, down from more than $19 in the same period last year, according to BP Plc. Asian oil refiners from Singapore to South Korea are cutting operating rates as they grapple with a slump in margins.

High costs and low prices have resulted in a decline in China’s domestic crude output, where ageing fields are becoming too expensive to maintain. The country’s total crude output has slipped 5.1 per cent in the first seven months of the year, while gas output has increased 3.1 per cent.

Capital expenditure in the first half was 13.5 billion yuan, Sinopec said.

Extracted in full from Sydney Morning Herald.