Two giants in China’s oil and refining sector have taken the most significant opposing positions in the Middle East crude trade in years, transforming global cargo flows and confounding oil traders around the world.
Over the course of this month, Dubai crude has fluctuated widely, largely due to aggressive bids and offers from the trading units of Chinese oil refiners PetroChina Co and Sinopec. They are respectively the country’s largest oil company and its main refiner. This has only intensified over time, eclipsing other players.
Public clashes between China’s state-owned behemoths are rare, and in this case, the activity of the companies in the Middle East’s main oil price benchmark is particularly peculiar because both are large refiners that, in theory, they should be eager to get crude as cheaply as possible. . Instead, PetroChina’s Hong Kong entity has been bidding and buying cargoes as a result of its bids, while Sinopec’s Unipec has been bidding and selling shipments.
No one responded to emails sent to the media departments of PetroChina and Sinopec seeking comment.
This month, more than a thousand derivative contracts have been traded in the vital price window that sets the Dubai price, close to triple the monthly average in 2023 and the largest volume for years.
At least 10 other traders said the activity, surprising to all given the normal patterns of Chinese entities, made it harder to determine the true strength of the Middle East oil market, a key part of the oil supply chain, as well as the state of China. recovery
Dubai’s oil price is the basis for almost all exports from the Middle East, including Saudi Arabia. This means that any strength or weakness in the price of the grade translates directly into the affordability of oil purchases across the region and how many barrels flow from elsewhere in the world to Asia.
The increase has also likely helped boost oil markets that are similar to those found in the Middle East. Norway’s Johan Sverdrup rose around $1 a barrel after Unipec bought the grade.
Traders said changes in global cargo flows would not have occurred without increased Chinese activity.
In the futures market, Dubai is a much smaller contract than Brent and West Texas Intermediate. But in recent months Dubai’s open interest has increased significantly, a sign of more positioning.
Window shopping
Typically, offers and deals in the Platts Dubai window are a reflection of the companies’ view of the Middle East market. Traders can buy and sell partial Dubai crude contracts on the window and get physical delivery of grades such as Oman, Upper Zakum and Dubai after 20 transactions.
Unipec aggressively offers partial Dubai contracts, derivatives that when combined allow traders to sell full cargoes of oil from the region. To date, the company has delivered 37 cargoes – or 18.5 million barrels – to various buyers. PetroChina HK has bought 11.5 million barrels.
France’s TotalEnergies SE was previously the most active bidder, but has now been overtaken by PetroChina. Total has also been selling cargoes in a parallel pricing window in the North Sea for much of this month.
The two Chinese giants previously clashed in 2015 when a unit of PetroChina’s parent China National United Oil Corp. bought 36 million barrels of Middle Eastern crude, mostly from Unipec.
Platts, a unit of S&P Global that operates the Dubai price window, said trading activity is the largest since 2015 and that cargo buying and selling has been among a wide range of market participants. He added that prices in Dubai have been boosted by a number of factors, including OPEC production cuts and official increases in Saudi selling prices, citing traders.
The impact of trade in the rest of the world is already evident.
In early June, Unipec’s aggressive sales indicated that the company was reluctant to buy large volumes in the Middle East. Instead, it bought supplies from the North Sea and the US, pushing up the cost by some grades with a price to benchmark Brent.
With Middle Eastern barrels now looking cheaper, Asian refiners may consider offering less crude from Saudi Arabia next month, looking for more affordable alternative barrels, traders said. Cheaper spot loads have already piqued the interest of Rongsheng Petrochemical Co. of China and Formosa Petrochemical Corp. of Taiwan, underscoring the wide impact of the window battle.
Volatility also remains intense. Last week, Oman’s spot spreads tripled and then fell back again. Traders said the move centered on concerns that there might not be enough loads to match sales volume in the window, although continued selling in partial trading eased those fears.
As most trading activity in Asia takes place during monthly cycles, positioning is likely to end when contracts expire this week at the end of June.
Executives have previously been suspended from their jobs for suffering heavy trading losses, most notably Unipec Chairman Chen Bo in 2018.
–With assistance from Sharon Cho, Alex Longley and Alfred Cang.
