China Controls Middle East Oil Market

One Chinese oil trader is acting like a hedge fund, trying to drive up oil prices to win derivatives bets. The other is acting like a refiner, trying to drive down prices to keep cost low. As the two sides battle it out and increase their bets, the two Chinese firms become the market.

Reuters: Chinese trading rivalry ruffles Asian oil markets
An intensifying rivalry between China's two top oil traders Chinaoil and Unipec is whipsawing Asia's oil market, pitting the state-owned firms against each other in a battle for control of the region's crude benchmark.

Aggressive trading - with heavy buying by Chinaoil met by selling from Unipec - has pushed up Middle East crude prices for Asia, even as other grades are being pressed lower by a global glut.

Asian buyers are being driven to seek cheaper oil elsewhere or cut refinery runs, but analysts say Beijing is unlikely to intervene in a process that reflects the growing clout of Chinese traders in global oil markets.

...In a series of buying sprees that began in October last year, Chinaoil has been snapping up record numbers of oil cargoes during a pricing mechanism that sets benchmark pricing for 12 million barrels per day (bpd) of oil sold in Asia, about 13 percent of the global consumption.

The strong bidding has pushed up the benchmark price, fuelling speculation that Chinaoil was aiming to reap big profits on positions it had taken in the derivatives markets.

On the other side of the market, Unipec's parent Sinopec imports nearly 80 percent of the 4.8 million bpd it processes - more than half of which is priced off Dubai - and its trading arm is preoccupied with keeping prices low.

The rivalry has seen the pair duelling in the Singapore-based Platts Market on Close (MoC) assessment process, with Chinaoil bidding up Middle East cargoes and Unipec selling in an effort to restrain prices.

Chinaoil has been breaking monthly trade volume records, buying 47 cargoes in October 2014, before taking a record 55 cargoes in April and 18 cargoes in June, with Unipec the seller for more than 60 percent in the April and June trade.

Earlier this month, Chinaoil snapped up 10 cargoes from Unipec in a single day, the highest daily volume on record.

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