Oil shares in China experienced a significant fall today. The fall is attributed to the weak first quarter earning of China’s biggest oil refiner in the middle of the current crude oil price increase. The shares of China Petroleum and Chemical Corp (Sinopec) fell by 4.4 percent after it made public that its profits fell 69 percent from what it was last year. Due to the Chinese government’s control over the oil process that bars the oil companies to pass the augmentation in oil prices to the consumers, the companies then subsidise their losses incurred during refining with the profit gained from the drilling process. In effect the Chinese oil companies bear losses because of the Chinese oil distribution policy.
The fact that the oil prices are at an all time high also caused the fall in oil stocks. The price of New York crude oil hit the record high of US$119.93 for a barrel on Monday after the shut down of the pipeline system that carried 700,000 barrels of North Sea crude oil every day to the U.K. The bar for the oil prices have been capped at their highest in 11 years. The increase in price only increases the loss for the companies. Earlier, the state tried to compensate the losses incurred by China Petroleum and Chemical Corp for keeping with its policies by providing them with 7.4 billion-Yuan. Now in addition to the earlier subsidy, the company is supposed to receive from the government money to cover up its losses.
Share prices of PetroChina, which is a part of the China National Petroleum Corp dropped by 4.3 percent. Analysts believe that 20 percent of the Shanghai index in accounted by the company as a result with each 5 percent decline in its price, 100 points are cut off the index. Even after the losses, market analysts are optimistic about the future prospects of the market and the company. The loss is considered simply the reaction to the low first quarter earnings of the China National Petroleum Corp which was expected by the investors. However, some experts believe that the future of oil stocks in particular is murky. Despite china’s efforts to cushion the public from the increasing crude oil prices and to cut down on its losses, the continual increase in the crude oil prices is bound to even out the profit.