China Petroleum & Chemical Corporation (HKEX:386)(SSE:600028) reported an 11.9% year-on-year rise in net profit attributable to shareholders for the first half of 2026, reaching RMB 26.567 billion. The integrated energy major navigated volatile crude prices and weakening domestic refined fuel demand through operational adjustments and a pivot toward high-value products.

Financial Highlights

Total revenue for the six months ended June 30, 2026, reached RMB 1.44 trillion, up 2.0% year-on-year. Basic earnings per share rose 12.2% to RMB 0.220. Operating cash flow increased 2.4% to RMB 62.499 billion. The Board declared an interim cash dividend of RMB 0.105 per share, representing a payout ratio of 49.5% under Chinese Accounting Standards.

Segment Performance

The Exploration and Production (E&P) segment delivered the strongest profit growth, with operating profit rising 21.5% to RMB 28.7 billion. This was driven by a 29.1% year-on-year increase in average Brent crude prices to USD 92.6 per barrel, despite only a 0.3% rise in oil and gas equivalent output to 263.47 million barrels.

The Refining segment saw operating profit surge 381.5% to RMB 17.0 billion, recovering from a low base. Revenue grew 6.7% to RMB 702.2 billion, supported by higher product prices. However, refinery throughput fell 5.6% to 113 million tonnes as the company optimized unit utilization amid dampened demand.

Conversely, the Marketing and Distribution segment faced headwinds from new energy substitution. Refined oil product sales volume dropped 9.9% to 100.99 million tonnes, leading to a 28.6% decline in operating profit to RMB 5.7 billion. Domestic sales volume fell 9.2%, with gasoline and diesel consumption declining 7.9% and 11.5% respectively.

The Chemicals segment recorded a narrow operating loss of RMB 0.2 billion, a significant improvement from the RMB 4.2 billion loss in the prior year period. This turnaround occurred despite a 1.6% revenue drop to RMB 238.1 billion, aided by cost reduction measures and a 70% surge in export volumes.

What the Numbers Show

The divergence between E&P profitability and downstream volume highlights Sinopec's current earnings dependency on upstream price leverage. While refining throughput contracted by over 5 million tonnes compared to the prior year, the segment's profit more than quadrupled, indicating that margin expansion on reduced volume outweighed the loss in scale. Meanwhile, the Chemicals unit’s ability to shrink its loss by nearly 95% despite falling sales volumes suggests effective feedstock cost management and operational discipline in a weak demand environment.

Outlook and Capital Allocation

For the second half of 2026, Sinopec plans capital expenditure between RMB 82.9 billion and RMB 99.9 billion. The majority will be allocated to E&P projects in Jiyang, Tahe, and Sichuan, alongside refining upgrades in Maoming and Qilu. The company aims to produce 141.83 million barrels of crude oil and process 113 million tonnes of crude in the second half, while expanding its integrated energy station network to capture growth in EV charging and hydrogen services.