Shell's $42/bbl refining margin outlook: why China's oil majors are benefiting at different rates

China's three state-owned oil majors - CNOOC, PetroChina and Sinopec - collectively reported approximately RMB 215.4 billion in attributable net profit in H1 2026, equivalent to around RMB 1.19 billion a day. But their exposure to higher oil prices differs materially. CNOOC benefits primarily from upstream resource exposure, PetroChina from a diversified earnings mix, and Sinopec from a more complicated combination of upstream gains and downstream pressures. Their capital allocation strategies point to three distinct paths for growth.

| Refining margins are surging-but the benefits are uneven

Shell's latest quarterly outlook illustrates the complexity of the current refining cycle.

The company's indicative refining margin is forecast to rise from US$24/bbl in Q2 to US$42/bbl in Q3. Over the same period, however, refinery utilisation is expected to decline from 102% to 93-97%, partly reflecting low Rhine water levels affecting the Rheinland refinery. Shell's indicative chemicals margin is also forecast to fall from US$270/tonne to US$208/tonne.

The message is clear: a stronger refining margin does not, by itself, guarantee stronger operating performance across every segment.

The extent to which higher margins translate into earnings depends on crude availability and procurement costs, operating rates, product yields and end-market demand. Chemicals exposure can further complicate the picture, particularly when petrochemical margins move in the opposite direction to refining margins.

For China's oil industry, the same distinction matters. Higher crude prices have supported earnings across the sector, but the transmission mechanism-and the durability of those gains-varies significantly by business model.

| China's three oil majors: The same oil-price cycle, three different earnings drivers

Brent crude averaged US$87.60/bbl in H1 2026, up 23.7% year on year. Against this backdrop, CNOOC, PetroChina and Sinopec generated combined attributable net profit of approximately RMB 215.4 billion.

The headline result is strong. The more important question is where the earnings came from.

| CNOOC: Upstream exposure delivers the most direct oil-price upside

CNOOC's upstream-focused business model gives it the most direct exposure to higher crude prices among the three companies.

As an exploration and production-led business, its earnings are driven primarily by the volume and realised prices of oil and gas sales. When crude prices rise, higher upstream revenue can translate relatively directly into stronger profitability, provided production costs and operating conditions remain under control.

With a net profit margin above 35%, CNOOC recorded the highest profitability of the three companies.

The commercial implication is straightforward: upstream resource exposure remains the clearest channel through which higher oil prices translate into earnings growth. This also means that CNOOC's performance remains particularly sensitive to realised prices, production volumes and the cost of developing new reserves.

| PetroChina: Portfolio diversification provides greater resilience

PetroChina's earnings are supported by a broader mix of upstream exploration and production, natural gas, refining, chemicals and new materials.

Its upstream and natural gas businesses provide a relatively stable earnings base, while its downstream strategy is shifting from conventional fuels towards higher-value chemicals and advanced materials. New materials output increased 61% year on year, highlighting the pace of expansion in this segment.

This diversified portfolio gives PetroChina multiple sources of earnings rather than making performance dependent on a single part of the value chain. Upstream operations provide the foundation, while new materials offer an additional source of growth.

The strategic advantage is not simply exposure to higher oil prices. It is the ability to combine resource-backed earnings with growth in higher-value products, helping to mitigate the impact of cyclical weakness elsewhere in the business.

| Sinopec: Upstream gains are offset by downstream pressures

Sinopec faces a different set of trade-offs.

Higher oil prices have supported its upstream earnings, while its refining business has benefited in part from inventory gains associated with rising crude prices. Downstream, however, high fuel prices have weighed on consumption, while the substitution of conventional fuels by new energy vehicles presents a longer-term structural challenge.

Its marketing business was the only segment to report a decline in profitability, according to the underlying analysis. Chemicals also remain exposed to challenging market conditions.

This leaves Sinopec more exposed to the tension between upstream gains and downstream pressures. Benefits from higher crude prices do not flow evenly through its integrated value chain; part of the upside is offset by weaker fuel demand and pressure on downstream profitability.

For Sinopec, the central challenge is not simply capturing higher oil prices, but managing the uneven transmission of those prices across its upstream, refining, chemicals and marketing businesses.

| Capital expenditure reveals where the next phase of growth may come from

Earnings show how the companies are benefiting from the current cycle. Capital allocation provides a clearer indication of how they intend to position themselves for the next one.

Despite their different business models, all three are prioritising upstream resource security, expanding selected new-energy businesses and moving towards higher-value chemical materials. Their individual investment priorities, however, remain distinct.

| CNOOC: Protecting production and strengthening the resource base

CNOOC continues to prioritise the stabilisation and improvement of oil and gas production. Capital expenditure is directed primarily towards domestic and overseas oil and gas fields to support production targets, with offshore wind positioned as a complementary area of development.

Its strategy remains centred on upstream resource development and operational efficiency.

| PetroChina: Balancing oil, gas, chemicals and new energy

PetroChina is pursuing a broader portfolio strategy built around stabilising oil production, increasing gas output, shifting the downstream mix towards chemicals and expanding new-energy businesses.

Approximately 80% of its capital expenditure budget is allocated to oil and gas and new energy. Alongside its upstream and natural gas operations, the expansion of new materials reflects a longer-term effort to move further into higher-value industrial products.

| Sinopec: Reallocating capital towards higher-value businesses

Sinopec is reducing investment in refining, commodity chemicals and service-station expansion, while directing more capital towards higher-value chemicals, upstream exploration and integrated energy-service stations.

Its investment priorities reflect the need to adapt to changing fuel demand while building new sources of growth across chemicals and alternative energy services.

The differences are material. CNOOC is reinforcing its resource base, PetroChina is balancing an integrated portfolio, and Sinopec is adjusting its downstream exposure while seeking higher-value growth opportunities.

Capital expenditure therefore offers an important signal of each company's strategic priorities beyond the current oil-price cycle.

| What this means for the energy sector

The lesson from Shell's refining-margin outlook and the first-half results of China's oil majors is that higher oil prices create a common tailwind, but not a common earnings trajectory.

Three factors will continue to differentiate performance.

• Resource exposure: Upstream-led companies are positioned to capture the most direct benefits from higher realised crude prices, subject to production and cost dynamics.
• Portfolio structure: Integrated companies can draw on multiple earnings streams, but performance depends on how effectively upstream gains offset pressures in refining, chemicals and marketing.
• Capital allocation: Investment in reserves, natural gas, new energy and higher-value chemicals will shape each company's longer-term growth profile and resilience through the cycle.

Shell's Q3 outlook also highlights the importance of looking beyond a single margin indicator. Refining margins, utilisation rates and chemicals margins can move in different directions, meaning that headline improvements in one segment should not be taken as a proxy for the performance of an entire business.

For energy companies and investors, the more useful question is not whether a high-oil-price environment is beneficial overall, but which parts of the value chain capture the upside, which absorb the pressure, and how today's capital allocation decisions will affect tomorrow's earnings mix.

| Read the full report

China Policy Perspective (Monthly) September Issue, Higher Oil Prices Lift China's Oil Majors in H1 2026, but Earnings Gains Diverge, examines the differences in first-half profitability across CNOOC, PetroChina and Sinopec.

The report provides a more detailed breakdown of earnings across upstream, refining, chemicals and marketing, alongside comparisons of refinery product mixes, refined-product demand and capital expenditure plans for the second half of 2026.

To request the full report and explore the implications for China's oil and refining markets, please contact inquiries@mysteel.com.