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.
Unipec’s parent company, state-run refining giant Sinopec, confirmed the move, saying only that it was related to work matters. In a later statement, it added that its unit had made some losses from crude trading because of a drop in prices.
Trading companies from Azerbaijan to Russia and the US 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 firms 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 US 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.
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.
The unusual trading losses, if any, could have been caused by Unipec’s strategy of buying long options and selling puts of crude at the same time, China International Capital Corp. analysts Nelson Wang and Chen Lu said. “Most of the potential losses could have been made from selling the puts,†they wrote in the note.
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, 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., fell as much as 5 percent in Shanghai, extending their 6.8 percent decline in the previous session.
“We expect the stock price could continue to be under pressure in the short term due to market concerns around Sinopec’s weaker-than-expected risk control management, potential further trading losses, and potential threats to its final dividend,†CICC’s Wang and Lu said in their report.
Unipec’s purchases on behalf of Sinopec were a critical contributor to China becoming the biggest buyer of US crude, before shipments were stopped due to the trade war between the two countries.