Rising Gasoline Prices Bode Well for Chinese Energy Companies

Robert Hsu, June 02, 2009

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As China's economy expanded over the past decade, its demand for energy products also grew rapidly. Today, China is the world's second-largest consumer of oil in the world, only behind the U.S. On a per capita basis, though, the average Chinese person only consumers about two barrels of oil per year in contrast to the 23 barrels each American uses.

But as China's economy continues to grow, I wouldn't be surprised to see that gap narrow with increased consumption of oil products in China. And the best company to profit from this trend is the largest operator of oil refineries in Asia.

This company not only holds the top spot in oil refining, it is also the number-one distributor of gasoline and other oil products in China. And it's the second largest producer of crude oil and natural gas in the country.

The company's success in recent years is because it's vertically integrated. This simply means that it's involved in everything from finding oil to operating gas stations throughout China.

While falling oil prices negatively impacted the company in 2008, its vertically-integrated business allowed it to focus on segments that would benefit in a world of low oil prices. In fact, the Chinese government focused the company on more profitable mid- and downstream operations -- like oil refining and product marketing -- which allowed it to profit more from falling oil prices.

This adjustment added nicely to the company's earnings -- in the first quarter, net income jumped 85% and management projected profits to grow more than 50% in the first half of 2009.

To reach these goals, the company remains active, not blindly believing that oil prices will remain at low levels. In fact, management is working hard to secure a steady supply of crude oil while prices remain low. This will ensure that the company has access to the oil it needs to keep up with demand, and still remain profitable when oil prices trade higher.

And the recent adjustment to gasoline and diesel retail prices in China allow the company will be able to refocus some of its efforts on other segments of its business. For example, as the leading distributor of gasoline in China, the company will profit nicely by selling gasoline to country at these elevated levels.

In fact, since oil prices have rebounded in recent months, this leading energy SOE in China watched its shares jump higher. In the past three months alone, shares have climbed nearly 60%. And this is just the beginning…

The company remains one my top picks on the Asia Edge buy list, and I don't want you to miss out on the next move higher. Learn how you can start profiting from China's rising demand for oil products and elevated oil prices -- join Asia Edge today!

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