Why Shares of Sinopec and PetroChina Both Plunged Over 8% Today

What happened

Share in China’s major oil and gas giants China Petroleum & Chemical Corp (SEHK: 386), better known as Sinopec, and PetroChina Company Limited (SEHK: 857) both plunged today.

Sinopec ended the day down a whopping 8.4% while PetroChina saw its stock price crater even more, down 8.6% on the first trading day following the long weekend.

Hong Kong’s Hang Seng Index had a terrible day itself, shedding 4.2% (or just over 1,000 points) on worries over rising US-China tensions surrounding both Covid-19 and the trade deal.

So what

Sinopec and PetroChina make up two of the triumvirate of Chinese oil & gas giants. They both fell on news that that Organization of Petroleum Exporting Countries (OPEC) had seen production surge by the most in almost 30 years, according to Bloomberg.

The collapse in demand for oil worldwide, following the Covid-19 outbreak, means that oil companies everywhere are suffering.

Last week, European energy giant Royal Dutch Shell cut its dividend for the first time since the end of the Second World War.

Both Sinopec and PetroChina, along with CNOOC Ltd (SEHK: 883), have had a shocking track record of shareholder returns over the longer term.

Now what

All eyes will be on whether the state-owned Chinese oil and gas players can persuade investors to keep putting money into them on the premise of dividend payments.

Unlike European and American energy firms (which are mostly private), dividends are being cut to preserve capital amid falling earnings.

However, for China’s state-owned enterprises (SOEs) that operate in strategic sectors and have many local governments as shareholders, cutting dividends will be hard.

With Sinopec shares yielding 9.5% and PetroChina yielding around 6.2%, and both trading at multi-year lows, dividend investors may be tempted.

Yet with constantly falling oil prices, it might be like trying to “catch a falling knife”.