China Petroleum and Chemical Corp. (Sinopec) released third-quarter results this week and the state-owned company showed upticks in production and sales, but fell short year-over on net-profit attributable to shareholders and basic earnings per share.

Operating income was up 5.43% year-over showing sales outpacing costs and overhead. But that meager margin was not nearly enough to boost shareholder earnings into the black. In fact, both net profit attributable to shareholders and basic earnings per share were down by nearly 10% year-over.

Production reached 318 million barrels of oil equivalent, a 4.92% year-over hike. Crude production was up 2.32% and natural gas production swelled 14.69% over the previous year.

All of this suggests that Sinopec may to be willing to break the bank to increase production and exploration. While Q3 operating revenue outshined Q2 in 2012, the shareholders ultimately picked up the tab for the shortfall.

If state-owned Sinopec is willing to short shareholders in favor of increased exploration and production, it's not much of a leap to speculate on China's intentions to own the East China Sea, putting them at odds with Japan, who have designs of their own on the rich resources beneath the sea floor.

An October 26 Reuters report quoted a Chinese Vice Foreign Minister as saying, "We (China) are watching very closely what action Japan might take regarding the Diaoyu islands and their adjacent waters. The action that Japan might take will shape China's countermeasures."

President Obama has pledged to favor Japan if push comes to shove -- so far, Japan has refused to back down. With China hungry for profits for state-owned Sinopec and in need of domestic energy sources, the dogs of war may cry havoc and slip in East China crude.

(Click here for Inputs Monitor's 'Sabre Rattling in the East China Sea')

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