Key Takeaways
A widening performance gap between China's state-owned oil giants shows how a surge in crude prices to over $117 a barrel is creating a fundamental earnings divergence, with Sinopec Corp.’s refining-heavy business model leaving its stock lagging peers by as much as 29 percent since March.
"This reflects the divergence in underlying earnings among the 'three oils' amid soaring oil prices," CLSA said in a research report. The brokerage expects this trend to continue as the second-quarter earnings season approaches in August, maintaining its preference for PetroChina over CNOOC and Sinopec.
Since the outbreak of the Israel-Iran conflict, shares of Sinopec (00386.HK) have trailed those of PetroChina (00857.HK) and CNOOC (00883.HK) by 29 percent and 18 percent, respectively. The divergence comes as the quarterly average oil price reached $117 per barrel, a 44 percent increase from the prior quarter. This price surge benefits upstream producers but hurts downstream players like Sinopec.
The primary challenge for Sinopec is its vast refining business. The company faces a margin squeeze as China's National Development and Reform Commission is slow to adjust domestic retail gasoline and diesel prices to keep pace with the rapid rise in global crude costs. Furthermore, the closure of the Strait of Hormuz has caused a spike in Very Large Crude Carrier (VLCC) freight rates, adding significant costs to Sinopec's crude imports. Against this backdrop, CLSA believes Sinopec could report an overall loss in the second quarter of 2026.
This potential loss directly impacts the company's dividend prospects for 2026. In contrast, PetroChina and CNOOC are benefiting from strong earnings in their exploration and production segments, which should generate robust operating cash flow and provide greater flexibility to increase dividend payouts.
Sinopec, however, may face significant pressure on its operating cash flow due to the downstream challenges. This could affect its ability to maintain its dividend policy in 2026, creating a stark contrast for investors focused on income.
CLSA rated the H-shares of all three oil giants as "Outperform." The firm set a price target of HKD 12 for PetroChina, HKD 32 for CNOOC, and HKD 4.9 for Sinopec.
This article is for informational purposes only and does not constitute investment advice.
