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Is This the Right Time to Sell PetroChina (PTR) Stock?

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On Aug 10, 2016, Zacks Investment Research downgraded PetroChina Co. Ltd. to a Zacks Rank #5 (Strong Sell). Going by the Zacks model, companies with a Zacks Rank #5 have strong chances of underperforming the broader market over the next few quarters.

Why the Downgrade?

Incorporated in 1999, PetroChina is headquartered in Beijing. The company is one of the leading integrated oil companies in the People’s Republic of China and is involved in the production and distribution of oil and gas.

Crude oil, which is a major indicator of global economic growth, suffered a massive setback when the commodity tumbled to a 13-year low of $27 per barrel in Feb 2016 due to a supply glut amid lackluster demand. Though the commodity recovered significantly and touched the $50 per barrel mark after most of the leading oil producers hinted at a substantial cut on crude production, the pricing scenario for oil remains tepid in terms of year-over-year comparisons.

With crude prices remaining weak for a prolonged period of time, PetroChina’s upstream division has been able to extract less value for its products. This has led to significant losses for the unit.

PETROCHINA ADR Price and Consensus

PETROCHINA ADR Price and Consensus | PETROCHINA ADR Quote

Moreover, in order to boost the weak natural gas demand across the economy, China announced massive pricing cuts for natural gas supplies to industrial and commercial customers last November. This reduction in domestic natural gas supply prices to industrial customers have hit PetroChina hard and have almost wiped out earnings for the company.

Another long-term concern for PetroChina is its oil production prospects. With about one third of its current crude oil volumes coming from the Daqing Oil region, the company is heavily dependent on this area. The Daqing Oil region is the largest crude oil producing area in China, but has significantly matured over the years and is currently well past its prime. As the degree of difficulty in extracting crude oil from the mature Daqing field increases, costs at these fields continue to increase.

Other Stocks to Consider

We expect PetroChina to perform below its peers and industry levels in the coming months and see little reason for investors to own the stock. However, one can consider better-ranked players in the energy sector like Sasol Ltd. (SSL - Free Report) , Murphy USA Inc. (MUSA - Free Report) and North Atlantic Drilling Limited , all of which sport a Zacks Rank #1 (Strong Buy).

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