1H17: cost cutting a key success in E&P/OFS; strong margins in R&C/Marketing。    We saw a familiar story on the upstream side: Oil production decline (5% yoy in1H17), natural gas production growth (14% yoy in 1H17), and aggressive costreduction measures. Overall, Brent boosted the E&P profit. Refining witnessedcompetition from teapots and volumes were soft on turnaround activities.Marketing and chemical performance was characterized by strong margins. OilServices continues to cut cost through technology advancement among othermeasures. In this bearish oil market, we continue to see value in companies withaggressive cost reduction strategies (CNOOC, COSL) and a strong balance sheet(Sinopec). Moreover, we expect SEG to benefit strongly from a downstream capexspending spree with stricter environmental protection laws imposed. SEG neworders picked surged strongly in 1H by 112% yoy, and the proposed managementincentive scheme should help the company to re-rate, in our view.。    E&P: oil demand remains healthy, while gas registers high growth。    Chinese crude oil Apparent Demand (AD) recorded healthy growth of 6.8% yoyin July (vs. 6.8% in 1H17), supported by robust imports surging 12.1% yoy (vs.13.2% in 1H17). China's oil production decline trend continued with July droppingby 2.8% yoy, following 2.2% and 5% yoy drops in June and 1H17, respectively,driven by sluggish oil prices. On a mom basis, China crude oil AD dropped by2.3% due to planned refinery overhauls since May, while net imports fell by 3.5%in July. China natural gas AD continued its momentum and registered +26.5%yoy and +1.9% mom growth in July. Domestic gas production was up 13.9% yoy,while gas imports increased by 52.8% yoy (of which LNG imports were +95% yoyand pipeline imports were +25% yoy).。    Refining: strong economy supports diesel demand; GRM trends up。    In July, China crude throughput fell by 1.3% mom due to planned overhaul;    however, total major refined products AD increased by 1.1% yoy (gasoline -0.1%,diesel +1.2%, and Kerosene +4.8%). In 7M17, major refined products pickedup by 2% yoy vs. 1% contraction in 2016, indicating a recovery in energyconsumption demand, mainly driven by better diesel AD due to a better economicsituation in China. Net imports by product: gasoline increased by 5.2% yoy,while diesel and kerosene dropped by 8.5% and 14.7%, respectively. In August,China GRM averaged USD11.67/bbl, +USD0.13/bbl mom, while month-to-datein September it averaged USD13/bbl. Quarter-to-date, GRM averaged USD11.80/bbl, +USD1.33/bbl qoq (vs. the 2Q17average of USD10.47/bbl).。

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