09:11 30.06.2020 (updated 09:14 30.06.2020) Short URL
China’s state oil refineries are discussing the formation of a group to act jointly on the world oil market for common benefit.
The project, supported by the Chinese government, aims at price conciliation, increasing the negotiating capacity in the purchase and avoiding bidding wars.
Market intervention group
Second Bloomberg, based on anonymous sources familiar with the initiative, senior executives from Chinese giants Petroleum & Chemical Corp., PetroChina Co., Cnooc Ltd. and Sinochem Group Co., which are the country’s largest importers, are in advanced talks, already in the final stage of discussing the details of the plan.
This group represents refineries that import more than five million barrels of oil per day, almost a fifth of the total production of the Organization of Petroleum Exporting Countries (OPEC).
If the deal goes ahead, the group could become the largest buyer of crude oil in the world. The initiative, which had already been considered in 2019, is now progressing definitively amid the pandemic, which has caused historical cuts in the production of OPEC and its allies to regain control of the market.
Economy grows along with oil prices
Original epicenter of the pandemic, China was the first major economy to reopen and its consumption of fossil fuels is returning to pre-virus levels.
The increase in demand has led Chinese state and private refineries to resort mainly to imports of Russian and Brazilian oil, in the spot market, raising prices.
For this reason, continues Bloomberg, the group in formation could end up launching collective offers on certain varieties of Russian and African oil.
© REUTERS / Meng Meng
Refineries in Boxing, Shandong Province, China, May 10, 2016
The said group of state refineries plans to jointly bid on Russian oil in July.
The group does not rule out the possibility of later expanding to include several independent Chinese refineries, including those in Shandong, according to Bloomberg.
Influence market and price
By joining, the Chinese group expects to have a more active voice and greater influence on the volumes and prices of crude oil to be purchased, benefiting from the fact that it has been playing – as its economy grows – an ever greater role in the Asian market and international oil industry.
With this concerted effort, the titans of Chinese refineries believe that they would no longer be so much at the mercy of the moods, fluctuations and impositions of the market.
Several mega-refineries have been opened in recent years, buying oil from China all over the world, from Brazil to Russia, through the Emirates and Iraq, with Saudi Arabia being its largest and traditional supplier.
If successful, the group will be the latest joint procurement initiative in China’s commodity sector.
In 2003, major copper smelters, such as Jiangxi Copper and Tongling Nonferrous Metals Group Co., formed a team to purchase copper concentrate from foreign suppliers for associated factories, Bloomberg recalls.
The group is currently made up of more than 10 smelters across the country and accounts for about 80% of Chinese copper concentrate imports.