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September 30, 2016

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Stock prices of China oil giants rebound

STOCK prices of Chinese oil companies rebounded yesterday after OPEC members reached a consensus to cut production which raised expectations of higher crude prices in the coming months.

Prices of China’s three oil giants shot up. China Oilfield Services Ltd gained 2.56 percent to 12.02 yuan (US$1.80), China Petroleum & Chemical Corp grew 1.68 percent to 4.85 yuan, and PetroChina rose 5.56 percent to 7.23 yuan.

Before the rebound yesterday, share prices of the three companies had shrunk around 4 percent since the beginning of this month.

The rebound echoed the quick surge of crude prices. Brent crude jumped 6 percent on Wednesday to US$48.69 a barrel.

Despite OPEC deferring the actual implementation of the proposal until November, it gave rise to hopes that the world’s crude inventories would drop and prices rise in the next two years.

Gordon Kwan, head of oil and gas research for Asia at Nomura Securities, has predicted that crude prices would rally to US$42-46 per barrel, hitting US$60 next year and US$70 in 2018.

“Despite softening amid supply glut, we see robust support for the rebound of crude prices as demand is expected to recover in the coming years while some oil companies are cutting output,” Kwan said.

“The demand-supply outlook would swiftly turn around especially if OPEC takes decisive efforts to cut production.”

In Kwan’s view, Chinese oil companies have been helping push the crude prices higher and improving investment sentiment by trimming production.

On Wednesday, China National Petroleum Corp announced it had set up an electricity subsidiary to diversify its business.

On oil business, it pledged to reduce expenditure by 23 percent from last year and cut crude production to 108 million tons annually, 3.2 million tons less from a year ago.


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