Oil Mayhem Hits China as Top Traders Are Suspended
(Bloomberg) -- China is the latest victim of the wild swings in oil prices that have roiled trading firms across the globe this year.
Two top officials at Unipec, one of the country’s most powerful trading companies, were suspended this week following losses on bets related to oil prices in the second half of the year, according to people with knowledge of the matter.
The parent company, state-run refining giant Sinopec, confirmed the move on Thursday, saying only that it was related to work matters. In a later statement, it added that Unipec had made some losses from crude trading because of a drop in prices, but didn’t link the two.
Trading companies from Azerbaijan to Russia and the U.S. have been forced to overhaul their strategy, restructure operations or cut jobs in a year when oil surged to a 2014 high and then dramatically tumbled into a bear market within a matter of weeks. Price spreads between crude grades in various regions, which are closely watched by traders seeking to take advantage of potential arbitrage opportunities, have also proven volatile and unpredictable.
Just in late September, some traders were predicting that global oil prices would hit $100 a barrel over the following months. Their forecasts were based on the prospect of a supply crunch due to U.S. sanctions on Iran that went into effect in November. However, America’s surprise decision to grant waivers from its restrictions to some nations sparked a collapse in crude.
It’s now looking like that turmoil has caught up with China. Chen Bo, the president of Unipec, and Zhan Qi, the Communist Party secretary, have been suspended, Sinopec spokesman Lyu Dapeng confirmed in a text message on Thursday, adding that it was due to “work reasons.” He declined to confirm whether the move was spurred by trading losses.
In its later statement, the company acknowledged that there had been losses, and said it was evaluating the details.
In September, Chen said that $60 to $80 a barrel was an acceptable range for oil prices. Brent, the benchmark for more than half the world’s crude, was trading near $53 a barrel on Thursday, after retreating from a four-year high of over $85 a barrel in early October.
Shares in Sinopec, known officially as China Petroleum & Chemical Corp., tumbled as much as 7.1 percent in Shanghai on Thursday, before closing 6.8 percent lower.
“The market is closely watching for any details of the loss, including its size and how big an impact it may have on the overall operations of Unipec and Sinopec.” Li Li, an analyst with industry consultant ICIS China, said by phone from Shanghai. “So far, the confirmed information is very limited, but it also seems that the risk is controllable.”
Unipec’s purchases on behalf of Sinopec were a critical contributor to China becoming the biggest buyer of U.S. crude, before shipments were stopped due to the trade war between the two countries. Chen, who headed the firm’s trading business, said in September that the company had put a plan to boost American imports on hold as it assesses the impact of the dispute.
While it stopped buying American supplies for use in Sinopec’s refineries, Unipec continued to lift cargoes to resell to other firms in what’s known as third-party trading. More recently, an easing of tensions has spurred more shipments.
Earlier this year, Unipec -- -- known officially as China International United Petroleum & Chemical Co. -- was also embroiled in a dispute with Saudi Arabia, saying the producer’s prices were costly and cutting purchases just as it was boosting U.S. imports.
Chen and Zhan, who was the highest ranking party official at the company, couldn’t be reached at the firm’s Beijing office on Thursday. Ling Yiqun, a vice president at Sinopec, will take over their duties, the people with knowledge of the reshuffle said. Chen Gang, a vice president at Unipec, will take over administrative responsibilities, according to Sinopec spokesman Lyu.
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