Sinopec expects high crude, shipping costs to pressure Q4 refining: Executives

Sinopec expects international crude prices and freight rates to remain elevated in the fourth quarter, putting significant pressure on its refining business, company executives said during Sinopec's Q3 briefing conference call on Oct. 30.

"We believe uncertainty remains over navigation through the Strait of Hormuz, while there are also no signs of easing in some other geopolitical conflicts," CFO Shou Donghua said. "We expect the international crude and shipping markets in Q4 to reflect a combination of supply-demand dynamics and geopolitical premiums, keeping prices at elevated levels."

Sinopec's preliminary forecast showed that crude procurement premiums, freight and insurance costs would remain at $15/b or above in the fourth quarter and could exceed $20/b in December, Shou said.

By comparison, crude procurement premiums, freight and insurance costs fell to about $4.29/b in Q3 from a peak of $14.74/b in Q2 when the Middle East conflict broke out, Shou said, adding that the decline boosted EBIT by 20.7 billion yuan.

The freight for a 270,000 mt VLCC carrying crude from the Arab Gulf to China averaged $245.27/mt as of Oct. 29 in Q4, according to data from Platts, part of S&P Global Energy.

Under China's current oil product pricing mechanism, introduced in 2013, the government adjusts retail ceiling prices for gasoline and gasoil every 10 working days based on a basket of benchmark crude prices, reportedly including ICE Brent, NYMEX WTI and DME Oman, with the components weighted according to China's crude import profile.

Market sources said freight and insurance were set at a combined $5/b in the formula, Platts reported.

Li Li, head of the Operation Management Department, said the company would continue to deepen cooperation with shipping companies, including actively pursuing equity cooperation with relevant shipping companies to strengthen its control over transportation.

On the procurement side, Sinopec would more flexibly adjust its mix of term and spot crude supplies while maintaining diversification in crude import sources, trading methods and, in particular, transportation methods, allowing the company to better time its crude purchases, Li said.

Refined product exports

Li said Sinopec was still working out the detailed arrangements for refined product exports in Q4.

"Based on its current planning, the company expected its available quotas to be sufficient to ensure stable domestic refined product supplies while meeting its export needs," she said.

In terms of the pace of quota utilization, Sinopec has increased jet fuel and gasoil exports in response to movements in international oil prices, particularly changes in crack spreads, Li said.

Shou said Sinopec exported nearly 12.69 million mt of refined products, broadly stable year over year.

Sinopec has been awarded 17.6 million mt of clean oil product export quotas for 2026, up 4.2% year over year, Platts reported.

"Refined product export prices are generally aligned with the market, so our export margin should be above 1,000 yuan ($150.22)/mt," Shou said. "This has made a significant contribution to refining earnings."

Sinopec processed 170 million mt of crude in the first nine months, down 10.7% year over year, while refined product output fell 7.3% to 100 million mt.

Its refining margin rose to $9.90/b from $6.10/b a year earlier, while refining EBIT reached 30.1 billion yuan, compared with 7 billion yuan in the same period last year.

Compared with Q2, jet fuel and naphtha cracks remained at elevated levels in Q3, but both narrowed quarter over quarter, according to Shou.

The jet fuel crack narrowed by 1,239 yuan/mt ($23.60/b) quarter over quarter, reducing EBIT by 6.2 billion yuan in Q3, while the naphtha crack narrowed by 730 yuan/mt ($12.30/b), cutting EBIT by 5.9 billion yuan, Shou said.

Chemicals

On the chemicals business, Shou said the approaching traditional consumption peak around Christmas and the Lunar New Year would boost restocking demand, while the decline in petrochemical product consumption was expected to slow.

She said projects including Jiujiang aromatics and Maoming could come online successively in 2026-2027.

"I believe the commissioning and operation of these projects will further improve synergies across the company's overall value chain, leverage the advantages of its chemical value chain and strengthen its ability to withstand risks," Shou said.

Domestic ethylene-equivalent consumption fell 9.4% year over year in the first nine months, according to company data cited by Shou.

Shou said Sinopec had increased the share of higher-value-added products, expanded chemical product exports, brought forward maintenance at units with low margins and strengthened overall cost controls.

The company also increased its use of lighter feedstocks such as ethane. Sinopec processed about 740,000 mt of ethane in January-September, compared with almost none in the same period last year, Shou said.

As a result, the chemicals segment recorded an EBIT loss of 1.7 billion yuan, narrowing its loss by 6.5 billion yuan year over year.

"We believe the decline in operating rates was due to raw material and supply shortages, which kept processing rates low," Shou said, adding that the overall decline in operating rates had an impact of nearly 3.6 billion yuan.