Unipec, Sinopec's trading arm, lost $688M on crude oil hedges in 2018

Unipec is the trading arm of Sinopec, China's state-owned petroleum and chemical giant — the world's largest oil refining conglomerate. Unipec handles crude oil trading for the group and is one of the largest physical oil traders globally.

In 2018, as Brent crude reached a four-year high near $87 per barrel in October, Unipec had built large hedging positions betting that oil prices would continue rising. The company used derivative instruments — primarily crude oil swaps and options — to protect against price increases.

When oil prices crashed more than 40% to under $50 per barrel by December 2018, the hedging positions became catastrophically wrong-footed. The loss was approximately $688 million, one of the largest commodity trading losses in a decade.

Sinopec disclosed the loss in January 2019, blaming 'misjudgment about the global crude oil price trend' and 'inappropriate hedging techniques.' Two top Unipec executives were suspended. The unwinding of Unipec's positions was speculated to have contributed to the December oil price volatility.