Sinopec, Asia’s largest refiner, on Tuesday warned that China’s domestic demand for oil products would fall in the second half of the year.

Su Shulin, chairman of the state-controlled Chinese company, said demand for products such as diesel and gasoline fell during the Olympics because of traffic restrictions which took half of Beijing’s 3.3m cars off the streets.
He also pointed out that demand in the first half of this year was boosted by Chinese companies stockpiling refined products in case of supply disruptions during the Games and in anticipation of a possible increase in retail fuel prices. That had come to an end, according to Mr Su, because the recent fall in international crude oil prices had damped expectations of price rises.

China’s import of oil product in the first half of this year was a factor in pushing up international oil prices, according to analysts.

“At least part of oil prices rising to $145 in the first half was because China was sucking in everything in sight, but now it’s clear that part of that strong first-half demand was driven by inventory build,” said Graham Cunningham, head of Asia oil and gas research at Citi.

Sinopec is facing its toughest time ever, according to Mr Su. The company has been under pressure in recent years because of the artificially low prices of its products, which are regulated by the state.

The group posted a 77 per cent fall in interim net profits in spite of receiving government subsidies.

As a result, Sinopec is cutting Rmb8.2bn ($1.19bn) from its Rmb116.3bn capital expenditure target for this year. It is also cutting costs wherever it can, including restricting when lights could be turned on at Sinopec offices, Mr Su said.

Dai Houliang, chief financial officer, said Sinopec will likely receive fewer subsidies from Beijing in the third quarter because international crude prices have moderated.

(The Financial Times, Aug 27, 2008)