Industry Report
China
Petroleum
Analyst: Grace Liu
86 (755) 82485666-6078
[email protected]
3 March 2004
Raise Projected Crude Oil Prices for 2004
Average prices of Brent crude oil during December 2003 to February 2004 was USD30.64/barrel, close to the
exceptional high price USD30.82/barrel during the war between the U.S. and Iraq from December 2002 to
February 2003.
Brent Spot
28.521
31.287
32.649
30.819
Dec 2002
Jan 2003
Feb 2003
Average
Dec 2003
Jan 2004
Feb 2004
Average
Brent Spot
29.879
31.175
30.876
30.640
Prices of Brent spot oil during Dec 2002 –Feb 2004
Sources: Bloomberg, GTJA (HK)
There are many factors affecting international oil prices and the factors positively to oil prices are including:
● The political situation of Middle East remains unstable and Iraq may take a certain of time to restore the city.
Terrorists activities may still happen. The unstable political factors may stimulate oil prices to move volatile.
● The OPEC will make use of the production volume to control and maintain OPEC basket of crude oil prices
ranging USD22 and 28 each barrel. The Committee meeting on 24 September 2003 announced to reduce oil
production taken effect from November. It reflects the OPEC gets ready for Iraq to restore its oil production.
Meanwhile, it also reflects its efforts to control oil prices. The meeting on 4 December announced the OPEC
maintains daily oil production 24.5 million barrels/day unchanged because oil prices still hover high. Due to
China Petroleum –March 3 2004
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1
the increasing demand in the winter, it is less possibly to reduce price. The OPEC meeting held in Algiers on
10 February announced oil productions might reduce 1 million barrels/day to 23.5 million barrels/day taken
effective on 1 April 2004 in order to maintain its original expectation of oil reduction in the second quarter.
It signals the OPEC to strengthen its power to control crude oil production volume and crude oil prices.
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economic control measures will force the weakening US dollar policies to remain unchanged. A weakening
US dollars policy is welcomed and accepted by the customers of Europe and Asia. It also becomes an excuse
for the OPEC to maintain its basket price USD28/barrel as an upper bound;
● The rallying economies of the U.S., Japan, China and Europe support oil prices hovering at highs.
International Energy Agency reported to upgrade global oil demands in 2004 from 220,000 barrels/day to
1.4 million barrels/day on 11 February 2004. The growth of demand is mainly from China.
● International Energy Agency announced the crude oil inventory as at 25 February amounted to 273.8 million
barrels, up 1.9% yoy, still lower than the historical levels. Gasoline inventory dropped 2.26% yoy to 203.4
million barrels, also lower than the historical average. The OPEC national industrial crude oil inventory in
December last year also reduced 430,000 barrels/day to 857 million barrels/day, up 21 million barrels yoy
but lower than the average level for the past five years.
Sources: Energy Agency in the U.S., International Energy Agency
Factors to force crude oil prices downwards:
● Another wars are less probably to appear according to the current international political situation. Oil prices
will not go up and down volatile;
● Iraq will resume the oil production to 2.8 million barrels/day back to the pre-war level;
● Traditionally, the demand in the second quarter will decrease and it will lead global oil supply higher than
oil demand;
● Non-OPEC members will continue to increase oil production. Production of Russia may enhance by 6.9% in
2004.
In conclusion, we upgrade our original expected average price of Brent spot oil from USD25/barrel to
USD26.5/barrel, up 6%.
China Petroleum –March 3 2004
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According to the domestic crude oil pricing system, international crude oil prices during Dec 2003 to Feb 2004
might reflect the crude oil prices in the first quarter in 2004. In addition, domestic crude oil prices in the first
quarter will take reference of the average price of USD30.64/barrel. The exploration and production businesses
of PetroChina (857), Sinopec (386) and CNOOC (0883) may be benefited by high oil prices during the first
quarter to remain flat. The profits of PetroChina (857), Sinopec (386) and CNOOC (0883) are highly sensitive to
oil prices changes. We will also enhance our profit forecasts 2004 on the companies mentioned above
accordingly.
Rating Definition
The Benchmark: Hong Kong Hang Seng Index
Rating
Buy
Accumulate
Neutral
Reduce
Sell
Time Horizon: 6 to 18 months
Relative Performance
>15%
5% to 15%
-5% to 5%
-5% to –15%
<-15%
Editor: Christine Yim
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consult the professionals and then make a prudential investment decision.
China Petroleum –March 3 2004
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