China Petroleum (NYSE: SNP) has already announced that its profits were down 71% in the first half. Now PetroChina (NYSE: PTR) is getting ready to report a drop in its profits.
The culprit is China's energy policy, which is hurting investors in the Chinese oil industry. According to the AP, "While other global oil giants are reporting record profits, Chinese government price controls prevent PetroChina and other domestic refiners from passing on higher costs for crude oil to consumers." It is an excellent reason for investors to avoid these stocks.
The central government control of oil profits is a fine example of why China should not have taken many of its large companies private. China needs to keep gas and diesel prices down to control inflation and offer cheap fuel to maintain transportation costs of exports at low levels.
With oil trading around $120 a barrel, the oil refiners in China could actually swing to losses in the second half. China is driving investors out of its most important corporations. PetroChina already trades near a 52-week low. That is likely to get worse.
Douglas A. McIntyre is an editor at 247wallst.com.
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