A general view of the Petrolchemie und Kraftstoffe (PCK) oil refinary in Schwedt/Oder, Germany. Opec members are engaged in an internal price war as they seek to preserve their share of an oversupplied market, Iraqi Oil Minister Adel Abdul Mahdi said.

Bloomberg

Members of Opec, the group that supplies 40% of the world’s oil, are engaged in an internal price war as they seek to preserve their share of an oversupplied market, Iraqi Oil Minister Adel Abdul Mahdi said.

“There is a price war within Opec,” Abdul Mahdi told an evening session of the parliament in Baghdad on Thursday, which was broadcast on state-run television. “The market’s fundamentals have changed, with an extra 3mn barrels a day of crude entering the market at a time when growth in China and India has slowed.”

Crude prices have collapsed more than 20% from their June peak, meeting a common definition of a bear market. Global supplies are rising as a shale boom spurs US production to the highest level in 30 years and demand grows at the slowest pace since 2009. Saudi Arabia, the world’s top oil exporter, cut the price of its main crude export grade to Asia to the lowest in almost six years on October 1, a move later matched by Iran.

“Saudi Arabia last month lowered its selling price by 75¢ on average as part of this price war, Iran has done something similar and we, in Iraq, lowered our price by 60 cents,” Abdul Mahdi said.

The Saudis will announce official selling prices for December next week. Asian traders are split on whether the kingdom will deepen the crude price cuts that propelled oil into a bear market. Seven respondents in a Bloomberg survey expected further discounts, six forecast prices would be unchanged and two anticipated an increase.

Members of the Organisation of Petroleum Exporting Countries boosted production to a 14-month high of 30.974mn barrels a day in October led by Iraq, Saudi Arabia and Libya, according to a separate Bloomberg survey of oil companies, producers and analysts. US oil production rose last week to the highest since at least 1983, according to the statistical arm of the Department of Energy.

Brent crude, the international benchmark, is headed for a sixth weekly loss, the longest losing streak since 2002. Both Brent and West Texas Intermediate, the US benchmark, are on track for their biggest monthly decline in more than two years.

December Brent futures were down 1.8% to $84.70 a barrel on the ICE Futures Europe exchange in London at 2:06pm. WTI fell 1.7% to $79.72 a barrel on the New York Mercantile Exchange.

“The meeting planned by Opec next month will discuss this matter and we hope to get an agreement on all issues,” Abdul Mahdi.

The 12-member group is set for a showdown as Saudi Arabia is resisting calls to reduce production even as oil slides further, said the vice-chairman of IHS Inc consultants and Pulitzer Prize-winning author, Daniel Yergin.

“There’s going to be a classic brouhaha in Opec about cutting,” he said in an interview at Bloomberg’s Singapore office today. “Everybody will have their own saga as to why they should only cut from a more theoretical level, and I don’t think the Saudis are going to buy into that.”

Opec isn’t engaged in a price war, according to the group’s secretary-general Abdalla El-Badri. “Our countries are following the market. People are selling according to the market price,” he said at the Oil & Money conference in London on October 29. Members of the group will decide on November 27 in Vienna whether to alter their 30mn barrel-a-day collective output target, which was agreed in December 2011.

The only call for a reduction of the ceiling came last week from Libya’s Opec governor, Samir Kamal. The target should be cut to 29.5mn barrels a day, he said, offering his personal view rather than the official position of the Libyan state.

 

Sinopec agrees to buy parent’s $562mn stake in Saudi refinery

 


China Petroleum & Chemical Corp beat estimates for third-quarter profit as Asia’s biggest refiner processed more higher-margin products and agreed to buy its parent’s stake in a $10bn facility in Saudi Arabia.

Net income at the company known as Sinopec dropped to 19.3bn yuan ($3.1bn) from 22bn yuan a year ago, the company said in a statement to the Hong Kong Stock Exchange on Thursday. The median of five analyst estimates compiled by Bloomberg was 17.3bn yuan.

“Increased demand for higher-grade oil products really helped Sinopec’s earnings as margins in those products are much better than regular ones,” said Shi Yan, a Shanghai-based analyst at UOB-Kay Hian. “Sinopec’s refining margin may get squeezed in the fourth quarter as it has to digest the oil inventory piled up from when crude prices were high.” Sinopec usually has two to three months of crude inventory, Shi said.

The refining business helped counter a decline in exploration and production caused by the falling price of oil and an increase in costs. That may explain why Sinopec will buy its parent China Petrochemical Corp’s stake in a refinery at the Saudi city of Yanbu for $562mn.

The 400,000 barrel-a-day plant may start this year, Saudi Arabian Oil Co chief executive officer Khalid al-Falih said in 2012. China Petrochemical owns a 37.5% stake and Saudi Aramco, as the company is called, the rest, according to yesterday’s filing.

Third-quarter earnings at Sinopec were boosted by a one-time investment gain of 2.37bn yuan after the refiner sold 210mn shares in China Gas Holdings in August, Shi said.

The state-owned company will step up cost controls and improve income from non-fuel businesses such as retail outlets at fuel stations to bolster fourth-quarter earnings, company secretary Huang Wensheng said in a call with analysts yesterday, according to Shi.

Sales and other operating revenue rose 4.8% to 759.5bn yuan in the quarter. Nine-month operating profit from refining jumped 67% to 11.1bn yuan, according to the earnings statement, which didn’t give quarterly operational metrics. The same measure for the exploration and production business dropped 11% to 41.7bn yuan. Crude and natural gas output rose 8.1% to 357.4mn barrels.

Realized crude prices fell 0.4% to $94.72 per barrel in the first nine months, while realised natural gas prices rose 15% to $7.05 per thousand cubic feet.

The stock gained 0.5% to HK$6.74 as of the noon trading break in Hong Kong. The shares have climbed 6.5% this year, compared with a 2.6% advance for the city’s benchmark Hang Seng Index.

 

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