Petrochina Co., Ltd. (601857) saw widespread buying of its A-shares on 15 Oct 2008 stoked by slipping oil prices. But analysts warn that this is merely a blip in a downward trend as energy shares plummet.

Qiu Xiaofeng, an analyst from China Merchants Securities, pointed out that it wasn't declining oil prices that could significantly expand earnings; but rather, the domestic pricing mechanism and the holding-increase-plan.

Crude oil prices are seen to undergo further adjustment in the context of a slowing global economy and rising oil supply from non-OPEC countries, he added. The general curves of supply and demand are unattractive for crude oil prices when compared to 2006 when a reshuffle was made.

Domestic oil prices are soon to reach international prices, said Qiu, the values of both Petrochina and Sinopec are currently underestimated and the degree of undervaluation goes up accordingly with rising oil prices. Nevertheless, Petrochina has a stable performance while Sinopec reacts a little more sensitively to volatile oil prices.

Source: International Finance News

Date: 16 Oct 2008

CN01/FL/JL/NK/KM