China's major oil and gas companies are expected to face fewer headwinds in the second half of this year despite their profit drops during the first six months, as the novel coronavirus epidemic lockdowns and sagging global oil prices dented their profit margins.

As the Organization of Petroleum Exporting Countries has been sticking closely to the planned oil-production cuts to guard against the market recovery and Chinese refiners' run rates have recovered in the third quarter, it is expected oil demand will stay healthy, said insiders.

"Refining business dragged down oil companies' profitability in the first half, as fuels demand took a major hit from COVID-19, and State-owned companies saw a decline in operating rates from a year earlier," said Tang Sisi, an analyst at research firm BloombergNEF.

"We expect State refiners to face fewer headwind in the second half, as their run rates have recovered in the third quarter, and oil demand is expected to stay healthy. But challenges will remain as overcapacity intensifies the competition in the refining sector, and high refinery run rates might get ahead of demand growth," she added.

China's top three oil and gas companies reported dismal fortunes during the first six months of this year.

CNOOC Ltd, the listed arm of China National Offshore Oil Corp, said its net profit fell by 66 percent on a yearly basis to 10.38 billion yuan ($1.5 billion) during the first half of this year, while PetroChina Co Ltd posted a net loss of 29.98 billion yuan, compared with a net profit of 28.42 billion yuan in the previous year. The net loss at Asia's biggest refiner, China Petrochemical Corp (Sinopec), was 21.7 billion yuan compared with a profit of 32.2 billion yuan a year ago.

While PetroChina cited the plummeting oil price and demand slump due to the COVID-19 outbreak for the drop in revenue and profit, Sinopec said measures to slow the spread of the coronavirus have depressed demand for everything from jet fuel to gasoline, forcing it to process 10.5 percent less crude than the year before.

Industry experts said the loss was mainly due to the weak fuel demand as the coronavirus hobbled industrial activity and curbed travel.

Li Li, energy research director at ICIS China, a firm that tracks China's energy market, said there is still profit room for CNOOC and PetroChina thanks to OPEC's efforts.

Though the COVID-19 epidemic has influenced Sinopec's profitability, whose core business is refining, the second half of the year will see a gradual recovery in both market demand and refinery profits for the company, she said.

Although the lockdown may not be completely lifted in the short term and the jet fuel market won't see a full recovery until the end of 2021, some markets including the pitch and base oil sector might witness growth from pent-up demand in the July-December period, said Li.

PetroChina, China's largest oil and gas producer, reported a revenue of more than 929 billion yuan in the first half of this year, down 22.3 percent year-on-year, it said in a regulatory filing with Hong Kong Exchanges and Clearing Ltd.

CNOOC said its revenue declined to 74.56 billion yuan from 109.31 billion yuan in the year-ago period, while Sinopec generated a revenue of 1,034.3 billion yuan, down 31 percent compared with 1,499 billion yuan in the first six months of 2019.

The three oil giants have announced that they will adjust investment decisions dynamically according to market changes.

PetroChina said it will cut its 2020 capital expenditure outlook by 23 percent compared with 2019, while Sinopec also lowered its full-year capital expenditure outlook by 10 percent from the 143.4 billion yuan it projected earlier this year. CNOOC said it has lowered its annual plans for both capital expenditure and production this year to mitigate the impact of subdued oil prices, down 11 percent than planned, mostly in overseas investment.