Some of the biggest names in the global oil market are piling in on opposite sides of a normally sedate Middle East crude-trading window, making it harder to assess the impact of deep oil production cuts in the world’s top exporting region.
(Bloomberg) — Some of the biggest names in the global oil market are piling in on opposite sides of a normally sedate Middle East crude-trading window, making it harder to assess the impact of deep oil production cuts in the world’s top exporting region.
On the one side, units of TotalEnergies SE and PetroChina Co have collectively snapped up 11 million barrels of crude that underpin the benchmark Dubai price. Against them is Unipec, the trading arm of of China’s largest refiner Sinopec, which has been the biggest seller by volume this month. The activity is the largest in years for a key pricing window run by a unit of S&P Global.
Total and Unipec’s actions in particular have the hallmarks of contrasting bets on the fortunes of Middle Eastern crude relative to other benchmarks such as Brent oil, according to traders and brokers involved in the market. Total has also been offering to sell a host of cargoes in the North Sea since the start of the month, while it’s also unusual to see PetroChina and Unipec, two giants in Chinese oil refining, on opposing sides.
Representatives from Sinopec, TotalEnergies and PetroChina couldn’t be reached for comment.
Aside from the large volumes, which increase the potential profits and losses for traders involved, the wagers are also significant for a host of other reasons.
Traders are keenly focused on Dubai crude when looking to judge how much OPEC+ output cuts are tightening Middle Eastern oil markets, so changes in its value have far-reaching significance. It also helps set the price of oil exported across the Middle East, including for OPEC producers like Saudi Arabia, while fluctuations in its price relative to oil in other parts of the world shape how many barrels flow from west to east and vice versa.
Unipec has sold almost 450 derivatives contracts linked to Dubai and Oman crude so far this month. Total has bought more than 330, while PetroChina has bought about 240. Those instruments, known as partials, allow traders to ultimately convert a series of smaller derivative positions into a real, physically-deliverable crude cargo of 500,000 barrels.
It’s unclear whether Unipec is selling out physical cargoes its refiners no longer want just as Total snaps up oil for its units. Unipec was one of the Chinese refineries that nominated a lower volume of Saudi crude in July, traders said, though the window trades are for August. It also remains to be seen whether the companies would keep up their activities for all of this month as a retreat could cause price gyrations.
Traders and brokers said the companies may have associated trading positions in the Brent and Dubai markets.
Trading of the difference between Dubai and the global Brent benchmark has surged so far this year. Open interest — the total number of contracts currently held — on the nearest Brent-Dubai spread is at its highest level than any time since 2015, according to ICE Futures Europe data.
It’s not the first time the Dubai window has seen bumper activity. In 2015, two Chinese refiners were bidding and offering against each other in the window, creating confusion about demand in the world’s second-largest economy. In the North Sea market, Shell, the world’s biggest oil trader, has previously shaken up prices with brash buying sprees.
–With assistance from John Deane.
(Updates with Tuesday’s trading activity in seventh paragraph.)
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