China Petroleum & Chemical Corp. [[SNP]] is down about 1% in midday trading yesterday after opening higher despite impressive mid-year results, fellow Chinese energy company PetroChina Co. [[PTR]] being up and the energy sector as a whole gaining. What is wrong with this picture?

China Petroleum & Chemical, better known as Sinopec, exceeded analysts’ expectations by more than 20%, posting about $4.9 billion in profit for the first six months of the year largely thanks to China’s easing of strict control of domestic fuel prices.

Unfortunately, China’s government has since lowered the price of petroleum and diesel – which is especially bad for Sinopec given that other operating revenue and income fell by 30% from a year ago. In other words, refining fuel for domestic use was the bright spot for Sinopec thanks to higher prices, but those prices are at the whim of the government, leaving concerns about the second half of 2009.

Sinopec is optimistic however: “Looking into the second half of this year, the state will continue applying proactive fiscal policy and relatively easy monetary policy…increasing domestic demand [for fuel].” Also, the company notes crude oil prices are expected to rise internationally in the second half of the year.

The market seems skeptical though.

China Mobile Ltd. [[CHL]] gained more than $4.37 billion in market capitalization Friday as shares gained 1.94%. Shares of China’s largest cellphone company moved on news that its new online application store, Mobile Market, would go live this month.

China Petroleum & Chemical Corp. [[SNP]] lost more than $2.31 billion in market capitalization Friday as shares lost 2.95%. The company better known as Sinopec was particularly hard hit on a day that was generally bad for energy companies. The energy sector lost 0.28% of its value with PetroChina Company Ltd. [[PTR]] and CNOOC Ltd. [[CEO]] also down.

PetroChina Company Ltd. [[PTR]] lost $9.3 billion in market value today it today’s top loser by market capitalization. Though the energy sector was down generally today, Chinese refiners were particularly hard hit due to China’s cut of fuel prices.

The Chinese government totally controls gasoline and diesel prices, and in an unexpected move it cut prices by more than 3% – cut that comes almost directly from PetroChina’s margins. Fellow Chinese refiners China Petroleum & Chemical Corp. [[SNP]], more commonly known as Sinopec, and CNOOC Limited [[CEO][ also dropped significantly.

PetroChina Company Limited [[PTR]] shares surged more than 4.4% in normal trading today, adding some $9.2 billion in market capitalization to the Chinese oil and gas giant. The company rode a 2.77% gain in the energy sector as a whole. Competitor China Petroleum & Chemical Corp. [[SNP]] saw a 5.87% rise in its shares.

China Life Insurance Company Ltd. [[LFC]] gained more than 6.2% or $7.5 billion after on a strong day for the markets generally. China Life Insurance announced yesterday that it dominates the Chinese insurance market, taking in some 40.7% of its premiums.

PetroChina Company Limited [[PTR]] is up more than 3% in late-day trading – adding more than $6.5 billion in market capitalization to the company.

The energy sector as a whole is up 1.95% on the day, though PetroChina’s gains are greater than competitors like Exxon Mobil Corp. [[XOM]] and BP [[BP]] but slightly behind Petroleo Brasileiro [[PBR]].

The only news to report is that PetroChina’s parent company China National Petroleum Company announced over the weekend that PetroChina will increase crude oil capacity at its Jilin plant by a third to 200,000 barrels per day by late 2010.

Last week, PetroChina reported higher refining profits for the first-half of the year thanks to a relaxing of price controls on diesel and gas by the Chinese government.

Though specific figures have not been released, PetroChina Company [[PTR]] has recorded a record operating profit for the first half of 2009 according to its parent company.

China National Petroleum Corporation (CNPC), the parent company of PetroChina, released a statement on its website stating that PetroChina’s record results were fueled by its refining business. This is a dramatic and promising shift for PetroChina – and other domestic oil and gas companies in China – moving forward as refining has generally been a money-losing proposition in the past.

The People’s Republic of China tightly controls the price of diesel and gasoline in the country, often forcing companies like PetroChina to refine fuel at a loss to keep the price low for consumers. For instance, even during the record oil prices of last summer PetroChina’s refining operations were losing money.

This year, however, China’s government has raised diesel and gasoline prices by more than 15% – providing breathing room for refiners like PetroChina to profit from their refining operations.

How long this “fuel policy reform” will last in China is anyone’s guess – there is speculation among many analysts that inflationary concerns resulting from the huge flood of money provided by China’s economic stimulus (the money supply in China is expanding at three-times the rate of the U.S. money supply) will lead the government to cut fuel prices in an effort, however feeble, to reign-in inflation.

Barring a long-term policy shift that allows PetroChina to consistently cash-in on refining operations at exemplary levels, even with record first half results the stock isn’t attractively prices compared to its peers.

PetroChina’s estimated Forward Price-to-Earnings (P/E) Ratio is 10.05 and Price-to-Earnings-to-Growth (PEG) Ratio over the next 5 years is 3.08. Compared to Exxon Mobil Corp. [[XOM]], with a Forward P/E of 10.92 and a PEG of 3.01, the stock is trading at par. For the “Major Integrated Oil and Gas” Industry as a whole, however, PetroChina is expensive: the average PEG in the industry is only 2.47

Certainly PetroChina could offer explosive growth if its investment spree pays off – the company has recently invested in Nippon Oil Corp.’s Osaka refinery, bought a major stake in Singapore Petroleum Co. for $1 billion, is negotiating with Ecuador to secure crude oil purchases, and is seeking its first foray into Europe through an investment in a refinery in Scotland. And this is not near a complete catalog of recent developments.

Nonetheless, right now there are simply too many stocks on sale for PetroChina, at its current valuation, to be a clear buy.

Though recent years have been exceptionally good to energy companies – the top six most profitable companies in the world in 2008 according to Fortune Magazine were all energy companies with Exxon Mobil holding the top spot despite the drop in oil prices.

Chevron and Exxon Mobil’s respective drops today stem from Chevron’s warning, issued in an 8-K filing, of weak second-quarter results due to lower refining margins combined with foreign currency losses due to the weakening of the U.S. dollar against most other major currencies. Exxon Mobil would be susceptible to similar problems.

Without American refining operations or major exposure to weakness in the U.S. dollar, Chevron’s announcement doesn’t explain PetroChina’s drop. Instead, investors may be responding unfavorably to macroeconomic conditions that are dragging major oil and gas companies down across the board today.

Also of possible concern, PetroChina received approval from the Chinese government to invest in Nippon Oil Corporation’s Osaka refinery. Though the deal itself is not particularly problematic, China’s commodity investment spree – described by some as the largest investment in the history of the world when tallied together – has some watchers worried that China is sometimes overpaying for access. The Nippon Oil deal comes on the heels of purchasing a major stake in Singapore Petroleum Co. for $1 billion and the announcement of talks to invest in a giant oil refinery in Scotland, PetroChina’s first attempted move into Europe.