[This is only fair]--"China Entering Stage as Global Oil Dealer"
By Jonathan Leff
Reuters
Tuesday, July 5, 2005. Issue 3201.
SINGAPORE -- Giant refiner Sinopec's offer to sell millions of barrels of crude was as much a ploy to depress global prices as a bid to shift surplus oil, heralding a new era of trading power from China, the world's No. 2 consumer.
Sinopec's trading arm Unipec, normally a buyer of oil, surprised Asian markets last week by offering an unusually large 6 million barrels of prompt physical crude, including cargoes from Latin America, the Middle East and West Africa.
They certainly had reason to sell: Soaring international costs and low, government-controlled retail prices had sent refiners' profit margins plunging into the red, forcing many to cut operations by about 5 percent this month.
But the suddenness, size and means of its offer made some industry observers wonder if their motive was more about pressuring global oil prices than selling physical crude.
"They did have too much oil, that's for sure. But the other thing they were trying to accomplish was push flat price lower, they have the size to do that now," one veteran oil trader said.
There is nothing new about using physical oil to push prices lower. Oil traders regularly issue loss-making offers and bids on Middle East Dubai or Europe's Brent-Forties-Oseberg crude to profit from larger positions tied to those markers.
But Unipec may have taken aim at a bigger target with last week's gambit, traders say, hoping the sight of a rare sell-off by China's biggest buyer would knock U.S. crude prices lower, giving their parents' refining margins an immediate boost.
Oil prices did fall sharply, losing 7.3 percent between last Tuesday's record high of $60.95 per barrel and Thursday's closing price, just when Unipec was sounding out potential buyers for its crude. Traders ascribed the drop to speculative profit taking and a jump in U.S. crude stocks.
But after China's 35 percent spurt in crude imports helped prices surge last year, Unipec's offers would not have gone unnoticed in London and New York, where speculators are on alert for any slowdown in China's oil demand.
"The poacher has become gamekeeper," said one European trader in a reference as apt for niche Angolan crude as for global oil markets. "It's bearish when the biggest buyer becomes a seller."
Last week's move may have been the most apparent sign yet that China's three dominant state traders -- Unipec, PetroChina arm Chinaoil and trading house Sinochem -- are expanding their role on international markets just as their parent firms are taking on oil majors for upstream access across the globe.
If so, their collective power is enormous. The three state traders, who ultimately report to Beijing, account for nearly all the crude imported by China last year totalling 2.45 million barrels per day, equivalent to Kuwaiti output.
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