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Why China Petroleum & Chemical Corporation Stock Fell 17% in December

By Reuben Gregg Brewer - Updated Apr 16, 2019 at 10:33PM

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This Chinese energy giant took a nosedive in the final month of the year, right along with the price of oil -- but don't forget about this key issue

What happened

The shares of China Petroleum & Chemical Corporation ( SNP 1.00% ) fell a dramatic 17.3% in December, according to data provided by S&P Global Market Intelligence. That was a particularly steep decline, leaving the shares near their lows for the year and roughly 4% below where they started 2018. That said, the stock ended December off by roughly 33% from the highs reached early in the year, so the final tally doesn't really give justice to the full year's ups and downs.

So what

China Petroleum & Chemical Corporation, as its name implies, is an oil company. Yes, it has diversified operations that span both the upstream (drilling) and downstream (chemicals and refining) spaces. But at the end of the day oil prices are still very important to the company's top and bottom lines. Oil prices dropped steeply in December, and investors reacted by selling China Petroleum & Chemical's stock. That's shouldn't be a big shock, as the same thing happened to other oil companies

An offshore oil rig

Image source: Getty Images

That said, there's another issue to keep in mind with this particular energy company -- it is focused on serving the Chinese market. Again, that shouldn't come as a surprise, but it is a key differentiator if you are looking at the broader energy industry. While China Petroleum & Chemical Corporation competes along with some of the biggest energy industry players, it doesn't have the same global sales reach that BP, Chevron, or Shell have, as just a few examples.

This is notable today because investors are increasingly concerned about slowing economic growth in China. That's driven by many factors, but one big one is the trade tension currently brewing between China and the United States. These two trade partners have been in very public, and high-stakes, negotiations that could, if they don't go well, have a material negative impact on China's growth. A slowdown in demand could, in turn, have a big impact on China Petroleum & Chemical Corporation's financial results. The number of cars sold in the giant Asian nation has already started to slump. The worst part of all of this is that there's really no way to quantify the trade wild card other than to say that uncertainty is likely to continue for some time.  

Now what

Investors looking at energy stocks clearly have to deal with the ups and downs of oil prices. That's just the normal course of events. However, when looking at China Petroleum & Chemical Corporation there's another issue to consider -- the ups and downs of the Chinese economy. And the uncertainty of the U.S./China trade talks, and their eventual impact on the Chinese economy, suggest that this oil giant's stock could see even more volatility than others in the energy space right now. If you are looking at China Petroleum & Chemical Corporation, this fact needs to be added into the equation right along with volatile oil prices.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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