By Sean Geary
Chinese energy giant PetroChina (NYSE:PTR) could see downward pressure going forward due to a combination of new government edicts, structural flaws, and macroeconomic constraints.
While other Asian markets performed well to close out the week -- namely Japan (NYSEARCA:EWJ), whose Nikkei 225 Index jumped more than 2% in Friday trading -- Chinese markets stumbled. Although many observers had hoped that a seamless leadership transition would buoy equities, the Shanghai Composite (NYSEARCA:FXI) touched a seven-week low. At 2004.72, the index is barely above the important 2000 psychological level.
PetroChina was not immune to this downward pressure; the stock closed down in Shanghai about half a percent, capping a down week for the stock.
Like many equities, PetroChina has not fared particularly well over the past month; shares are down about 4% for the month. While the company’s shares have performed better than a number of benchmark indices, structural concerns over the stock’s prospects in the short term could be worrisome to investors.
Earlier in the week, PetroChina reported disappointing earnings. In particular, the company’s inability to operate its refineries profitably will way on the stock. As Zack’s indicates, as well, the company will have trouble operating profitably while having to import higher-priced gas and then selling it at a discount.
PetroChina’s problems have been further compounded by the Chinese government lowering the price of domestic hydrocarbons. With the government reducing the price of gas by 310 RMB a ton and diesel by 300 RMB a ton, PetroChina’s operating margins will certainly be adversely affected.
Furthermore, oil prices throughout the world could move downward if the United States is to follow the eurozone into recession if the fiscal cliff does not see a resolution. While this does not seem particularly likely, such an event could see PetroChina move lower.
In light of these company-specific and macroeconomic headwinds, it’s difficult to make a bullish case for PetroChina given these circumstances.