Saudi Aramco-Unipec’s love-hate relationship

In the world of crude oil trading and energy security, some cardinal rules apply — never destabilize your most secure source of supply and never upset a trading relationship with the largest supplier in the market. Chinese trader Unipec broke both rules at one go and the timing was terrible. It cut its nominations of sour crude from term supplier Saudi Aramco by 40% for barrels loading in May. A month later, Unipec did it again for June and then for July barrels, effectively cutting 40% of its procurement from the world’s largest exporter. This raised eyebrows in several oil trading circles for many reasons. Long-term oil contracts typically allow buyers to vary purchases by 10%-15% in a given month, to account for seasonal demand fluctuations. A 40% cut is unusual and would only be allowed in special circumstances like a refinery outage. If an oil refiner does successfully negotiate a large cut, it promises to make up for the purchases in subsequent months to preserve long-term business. The last thing a refiner wants to do is to use rival oil producers as a bargaining chip, which is exactly what Unipec did. In May, and then in early June, Unipec… continue reading

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Source: CTRM Center

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