Steam rises from the China Petroleum and Chemical Corporation (Sinopec) oil refinery on the outskirts of Beijing, China. (Photographer: Kevin Lee/Bloomberg News)

China Oil Stocks Slide Amid State Derivative Trading Probe

(Bloomberg) -- China’s oil stocks slumped in Hong Kong as regulators were said to be checking on the financial status of derivative trading accounts at some major companies following losses at a unit of oil giant Sinopec.

Cnooc Ltd. fell 6.5 percent at the close, its biggest loss since January 2016 and the most on the Hang Seng Index. PetroChina Co. slid 5.1 percent, while while Sinopec, officially known as China Petroleum & Chemical Corp., fell 2.7 percent.

China’s state assets regulator began the checks after two top officials at Sinopec’s Unipec, one of China’s most powerful traders, were suspended last week after losses on bets related to oil prices in the second half of 2018.

"Investors know Sinopec probably has registered oil trading losses, but they don’t really know if PetroChina or Cnooc have suffered similar losses or not," said Tian Miao, a Beijing-based analyst at Everbright Sun Hung Kai Co. "It’s reasonable to assume PetroChina and Cnooc are also exposed to similar risks, until both companies step out and provide a clarification. Until then, confusion and uncertainty will haunt China’s energy stocks."

Cnooc declined to comment when contacted by Bloomberg News. PetroChina and Sinopec didn’t immediately respond to requests for comment.

Investors also have China’s economy to worry about. Both the official and Caixin Media and IHS Markit manufacturing PMIs for December fell into contraction territory this week. Meantime, oil futures in New York fell as much as 2.2 percent as the sector started 2019 with the same volatility that marked the end of last year.

"The latest PMI is very bad, and it’s obviously bad news for oil producers," said Castor Pang, head of research at Core Pacific-Yamaichi International. "The economic weakness affects oil demand and prices directly, and obviously the price outlook is bad as demand is falling."

The sell-off in Chinese oil stocks was reflected elsewhere in the region, with the MSCI AC Asia Pacific Energy Index losing 2.5 percent.

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