OPEC cut to affect upstream secto

ANN@The China Post

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 one-third 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. ”

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.”