<News Analysis> Oil trading violations
- Violations in trading of a total of 179.5mt imported crude over the past 15 years
- Expect penalty for the violations; assuming US$70/bbl oil price and 1% net margin, profit from those crude oil would have amounted to ~Rmb5bn or 6% of FY22 forecasts
- Operations of Petrochina are unaffected
- No change to BUY call and HK$4.40 TP; Prefer CNOOC as oil proxy
Petrochina’s subsidiary – Petrochina Fuel Oil Company Ltd, is found to have violations in crude oil trading, in its routine audit. According to Caixin News, Petrochina Fuel Oil has illegal resale a total of 179.5mt of imported crude to 115 local refinery companies over the past 15 years.
In terms of potential financial impact, there could be penalty arises from the violations in FY22. Assuming US$70/bbl oil price, revenue from those crude sale will be approx. Rmb500bn. Oil trading margins is typically very thin, a 1% margin will translate to approx. Rmb5bn profit or c.6% of FY22 profit estimate. Stating the obvious, penalty shall be higher than gains from the violations, which is unknown at this stage.
Other than the one-off potential financial impact, operations of Petrochina are unaffected.
No change to our BUY call and HK$4.40. We continue to favour CNOOC as the better proxy to oil price.