View of an oil production facility of Sinopec, China's largest oil refiner, based in Taizhou, East China's Jiangsu Province Photo: cnsphotos

China's three oil giants have addressed the industry's woes amid the COVID-19 pandemic, as negative oil prices are likely to reappear, depressing the profits of the nation's debt-ridden petro-chemical sector.

Dai Houliang, chairman of China National Petroleum Corp (CNPC), the country's largest oil and gas supplier, said at a regular industry work conference over the weekend that the company must keep costs low to cope with volatile prices, China Petroleum Daily reported on Monday.

Dai called for more oversight of high-risk operations and breakthroughs in core technologies to ensure stable and safe oil supply chains.

Zhang Yuzhuo, chairman of the nation's top refiner Sinopec, presided over a company board meeting on Friday. The chairman called for reduced payouts in preparation for an enduring battle, according to a statement posted on Sinopec's website. He cautioned against rising debt risks.

Wang Dongjin, chairman of China National Offshore Oil Corp, the nation's largest offshore oil and gas producer, said on Friday that the company should be mindful of the huge shock of international crude oil price plunge and fully prepare for a long-term response to low oil prices. 

The statements illuminated the plight of the oil industry, and analysts expect more headwinds on the horizon. 

A report released in March by the China Petroleum and Chemical Industry Federation revealed that as of December 31, 2019, the nation's petrochemical sector had posted 668.37 billion yuan ($94.36 billion) in profits, down 14.9 percent year-on-year. 

Oil and gas extraction companies suffered especially badly over the past year, with 21.2 percent reporting losses. Their debt-to-asset ratio hit 47.19 percent, up 3.36 percentage points from the year before. 

The possibility of oil prices falling below zero again can't be ruled out, as Chicago-based CME Group, home to the West Texas Intermediate (WTI) futures contract, has announced it will allow negative oil options, Xi Jiarui, a senior crude oil analyst at Beijing-based commodities consultancy JLC Network Technology Co, told the Global Times on Monday.

The WTI May contract turned negative for the first time in history on April 20, one day prior to its expiration. 

Goldman Sachs analysts predicted in a note on Friday that the global oil market is set to test stor-age capacity limits over the next three to four weeks. 

As the pandemic continues to spread globally and global oil storage facilities might be filled to capacity, the downward spiral in oil prices is set to continue, Xi said, adding that if OPEC and its allies can agree on more oil output cuts at their meeting in June, a bounce in oil prices might be likely.

The analyst said that the next window of opportunity for revisions to retail fuel prices in China, theoretically falling at midnight (Beijing time) on Tuesday, might produce no results as the nation has already cut these prices to the floor rates, equivalent to $40 a barrel.

Crude oil prices "reached an historic low in April with some benchmarks trading at negative levels," the World Bank said in a statement circulated to the Global Times earlier in April.

The bank expected oil prices to average $35 per barrel in 2020, sharply down from the October forecast and a 43 percent fall from the 2019 average of $61 per barrel.


Newspaper headline: Oil giants address industry woes, with negative prices likely