OPEC cut to af­fect up­stream sec­tors

China Daily (Hong Kong) - - BUSINESS - By ZHENG XIN zhengxin@chi­nadaily.com.cn

OPEC’s agree­ment to curb crude pro­duc­tion for the first time in eight years will have more im­pact on the up­stream sec­tors of China’s oil giants, an­a­lysts said.

Do­mes­tic oil com­pa­nies that fo­cus on up­stream sec­tors, in­clud­ing ex­plo­ration and pro­duc­tion, are likely to see a rise in rev­enue as the deal reached by OPEC on Wed­nes­day is be­lieved to help bol­ster global oil prices at least in the short term, said Wang Lu, an Asia-Pa­cific oil and gas in­dus­try an­a­lyst from Bloomberg In­tel­li­gence.

“The State-owned China Na­tional Off­shore Oil Corp, which has more up­stream busi­ness re­lated to oil and gas ex­plo­ration and pro­duc­tion, will be more ex­posed to oil prices than its other two com­peti­tors — China Na­tional Petroleum Corp and China Petro­chem­i­cal Cor­po­ra­tion,” said Wang.

The im­pact on CNOOC is be­lieved to be the great­est among the three, with the re­cov­ery of oil prices im­prov­ing CNOOC’s rev­enue and op­er­at­ing in­come, she said.

CNPC and Sinopec, ac­cord­ing to Wang, fo­cus more on down­stream oil and gas sec­tors, in­clud­ing re­fin­ing and mar­ket­ing, which gives them an edge when the oil price is low.

OPEC has reached a de­ci­sion to re­duce out­put by about 1.2 mil­lion bar­rels per day to 32.5 mil­lion bpd in Jan­uary.

Oil prices have dropped dras­ti­cally since the sec­ond half of 2014. Over­sup­ply and a slug­gish world econ­omy were among the fac­tors that drove the prices down.

OPEC pro­duces about onethird of the world’s oil, ac­cord­ing to Reuters.

How­ever, Wang said it still takes time to tell how big the im­pact of the move in ac­cel­er­at­ing the in­dus­try’s re­cov­ery would be.

“A prom­ise to cut is one thing, but to de­liver it is an­other,” said Wang.

“The OPEC agree­ment to cut out­put has im­proved mar­ket sen­ti­ment and led to the price surge on Wed­nes­day. It will take months to mon­i­tor whether OPEC mem­bers ac­tu­ally de­liver their prom­ise. ” In­side

mil­lion bpd

the amount of daily out­put re­duc­tion set by OPEC mem­bers from Jan­uary See more

Li Li, en­ergy re­search di­rec­tor with ICIS China, said: “OPEC’s deal will surely have some short-term ef­fect in bol­ster­ing global oil prices and help­ing oil and gas firms in China.”

An­a­lysts said soar­ing oil prices in the next three to five years would be un­likely con­sid­er­ing the cur­rent de­mand and sup­ply sit­u­a­tion in the oil mar­ket.

US shale oil is likely to re­turn to vol­ume growth next year. “US shale oil may serve as the sta­bi­lizer to oil prices and cap the amount of re­cov­ery,” Wang said.

“All the mov­ing parts, in­clud­ing the OPEC cut and de­mand growth, make the re­bal­ance a dy­namic process and not easy to forecast.”

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