Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

China Oil Titans Plan Joint Crude Buying to Add Bargaining Power

CommoditiesJun 28, 2020 10:09PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. China Oil Titans Plan Joint Crude Buying to Add Bargaining Power

(Bloomberg) -- China’s state-owned oil refining giants are in discussions to form a purchasing group to buy crude together, increasing their bargaining power and avoiding bidding wars.

Senior executives from China Petroleum (NYSE:SNP) & Chemical Corp., PetroChina Co., Cnooc Ltd. and Sinochem Group Co. are in advanced talks to iron out details of the plan, said people familiar with the initiative, who asked not to be identified as discussions are private and ongoing. The proposal has won the support of the Chinese central government and relevant industry watchdogs, the people said.

For a start, the group is set to collectively issue bids for certain Russian and African grades in the spot market, they said. While it’s unclear how the cooperation will evolve, the group represents refiners that import more than 5 million barrels of oil a day. That’s nearly a fifth of OPEC’s total output, which would make it the world’s largest crude buyer in theory. The initiative -- first mooted in 2019 -- gained traction this year as the coronavirus spurred historic output cuts by OPEC and its allies to regain control of the market.

The original epicenter of the pandemic, China was the first major economy to reopen and its consumption of transportation and industrial fuels is now almost back to pre-virus levels. The v-shaped recovery has in recent months prompted the country’s state-owned and independent refiners to snap up Russian and Brazilian crude in the spot market, pushing up prices.

The state-owned refiners may jointly bid for Russian ESPO cargoes as early as next month in a trial run, the people said. The group might expand to allow participation from non-state owned processors -- including so-called teapots in Shandong province -- in the future, they said.

Sinopec’s media office declined to comment on the matter when contacted on Friday, while PetroChina couldn’t immediately respond. Emails sent to CNOOC (NYSE:CEO) and Sinochem went unanswered, while nobody immediately responded to fax messages to China’s National Energy Administration and the National Development and Reform Commission.

Long-Term Purchases

Importers from China to the U.S. to Europe with long-term supply contracts with Saudi Arabia and other big producers have struggled this year to manage the amount of crude received each month amid fluctuating domestic demand, refining margins and swelling stockpiles.

Based on terms embedded in these contracts, buyers can inform sellers of their preferred volumes, loading dates and grades in a process known as nomination. Volumes can only be adjusted slightly from earlier-agreed liftings, and final decisions lie with the seller. Saudi Aramco (SE:2222), Iraq’s SOMO and Abu Dhabi’s Adnoc all sell their crude at official prices announced early each month.

Indian processors and ports went so far as to declare force majeure in attempts to back out of crude liftings after the world’s biggest lockdown slashed demand. More recently, buyers across China and India sought more crude from Saudi Arabia after it cut volumes in-line with a wider OPEC+ pledge.

By banding together, the Chinese group hopes to have a louder voice and bigger say in the volumes and prices for crude purchased, the people said.

Other Attempts

While it’s unclear if the Chinese oil-procurement group will live up to expectations, grievances have been building up for several years as the country plays an ever-expanding role in the Asian and international oil market. Several mega-refineries have opened in recent years, while Shandong teapots have become regular buyers of crude from everywhere from Brazil to Russia.

Unipec -- the trading arm of Sinopec (NYSE:SHI) -- in particular has been a persistent critic of Saudi Arabia’s crude sales and prices, as well as Asia’s passive role as a price taker. The company sought in 2018 to renegotiate its contractual volumes with Aramco, resulting in a spat.

If successful, the group will be the latest joint procurement initiative in China’s commodity sector. In 2003, top copper smelters including Jiangxi Copper Co., and Tongling Nonferrous Metals Group Co. formed the China Smelters Purchase Team that buys concentrate for member plants from foreign suppliers. The group, known as CSPT, now consists of more than 10 smelters across the country and accounts for more than 80% of Chinese copper concentrate imports.

©2020 Bloomberg L.P.

China Oil Titans Plan Joint Crude Buying to Add Bargaining Power
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email