ASIA MARKETS: Outlook Improves For China Energy Majors

By Myra P. Saefong

Chinese energy majors were the subject of some optimistic analyst reports Tuesday, which cited a healthy long-term outlook for oil prices and demand despite some recent data to the contrary.

Analysts at Nomura upgraded their rating on Cnooc Ltd. (CEO)(CEO) to neutral from reduced, and raised their 12-month price target on the stock to 11 Hong Kong dollars ($1.42) from 9 Hong Kong dollars.

The analysts also boosted their earnings estimates for the company by 3% for the fiscal year 2009 and by 18% to for the fiscal year 2010, attributing the upbeat outlook on the stock to a higher forecast for oil prices.

Meanwhile, analysts at Bernstein Research said in a note to clients that they believe PetroChina Co.'s (PTR)(PTR) upstream business will improve in the second half of the year and into 2010, "as new projects start up and domestic demand growth for oil and natural-gas accelerates."

By late morning trading, oil shares in Hong Kong gained ground, with Cnooc advancing 0.6% and shares of PetroChina 0.9% higher. China Petroleum & Chemical Corp. , also known as Sinopec, tacked on 1%.

The advances for oil stocks in Hong Kong paced strength in the Hang Seng Index, which climbed 0.8%.

The gains were mostly limited to Chinese energy players, as Australia's Woodside Petroleum Ltd. and Santos Ltd. lost 1.2% and 0.9%, respectively, hit by an overnight decline in benchmark crude futures.

Those moves outpaced a 0.1% fall in Sydney's S&P/ASX 200 index.

In other regional action, Korea's Kospi was up 0.9%, while Taiwan's Taiex rose 0.1%. The Japanese market was closed for a holiday.

Price boost

The Nomura analysts also raised their Brent oil price predictions Tuesday by $4 per barrel to $62 for 2009, and by $12 to $72 for 2010.

"The recent financial crisis has caused a number of projects to delay start-up, and it appears that this has affected [fiscal] 2011 supply," they said. "Looking at the latest data, incremental demand will likely outpace incremental supply" for the year, and that will most likely push oil prices higher.

The benchmark October crude contract, which expires at the close of regular Tuesday trading in New York, settled at $69.71 a barrel in U.S. action Monday, but then booked modest gains in Asian-hours electronic trade to move at about $70.

Monthly slip

The bullish comments for the Chinese energy firms contrasted with data analysis released by Platts late Monday in Hong Kong, showing that China's oil demand slid 5.4% during August.

It was the first month-to-month decline in six months, as China, the world's second-largest oil consumer, reined in both oil imports and crude throughput rates at domestic refineries, Platts said.

The country had increased crude imports and refining rates to all-time highs in July, which is said to have left state-owned refiners Sinopec and PetroChina with swollen refined product inventories in the face of lackluster demand, according to Platts.

"August seems to have brought a reality check for refiners in China," Vandana Hari, Asia news director at Platts, said in a statement. "Domestic fuel demand has clearly been lagging their high processing rates, and storage space is finite."

Still, some of the Hari's comments seemed to justify the analysts' projections.

"The [downward demand] correction could be short-lived because the government's new domestic oil pricing policy ... incentivizes high refining volumes," she said.

"As long as inventories can be managed by boosting product exports and reducing imports, refinery throughput might remain high," she said.

China's implied oil demand totaled 33.02 million metric tons in August compared with 34.92 million metric tons in July, the Platts analysis said.

Charles Perry, president of energy-consulting firm Perry Management, said oil demand shouldn't be judged solely from the recent Platts data.

"One month alone could be timing in shipments," Perry said, adding the market would "need to see a trend, which will take about three months."

Apparent Chinese oil consumption in August was still 3.58% higher than the same time a year ago, according to the Platts data.

"The Chinese market is worth watching, and I am convinced it has a way to go before it peaks," said Perry. "As prosperity comes to China, their demand for autos and fuel will go up."