There’s an interesting clash going on between Chinese officials and international oil traders.
Chinese authorities recently detained an oil trader from the $60 billion commodities firm Glencore, Li Buhua, for bringing in a 100,000-tonne load of “power kerosene,” according to Reuters.
Power kerosene is awesome, as far as fuel goes, because it can easily be turned into diesel (its quality is in between diesel and kerosene), but it isn’t taxed. Consumption taxes on oil however are extremely high.
Traders in China started trading a lot of power kerosene last year, when prices of imported oil rose.
South China’s non state-owned, independent refiners and importers have started importing a rare cocktail blend called “power kerosene” — a blend of kerosene and gasoil — as they look at ingenious ways to make up for their lack of access to crude oil and boost margins in the face of rising fuel oil prices…
In China, only companies approved by the government and granted import licenses can import gasoil, while state-owned China National Aviation Fuel Group is the only organisation allowed to import jet/kerosene to supply the aviation industry.
“Power kerosene” falls into no-mans land as it is neither kerosene nor gasoil, and importers and refiners have been taking advantage of this loophole.
Then word spread and Sinopec Corp, China’s largest refiner, complained to the authorities about the exotic oil flows. So authorities began investigating, and now, they might be trying to close the loophole, and hence detain a trader and ask him for more information.
More on the detained trader:
Buhua, the Glencore trader, was detained by local customs authorities and released last week on bail, according to Reuters.
Buhua was detained over a 100,000-tonne cargo that Glencore brought in last year through one of China’s customs ports. On those figures, says Reuters, the shipment would be worth around $80 million and value of the tax would be about $12.5 million.
Chinese authorities seem to believe that oil traders “took advantage of loopholes” to bring the fuel in tax-free. The Chinese paper that reported on Buhua’s detainment, The 21 Century Business herald, wrote:
“The companies involved collaborated with Chinese officials and swapped around the names of the import goods, taking advantage of loopholes in Chinese customs regulations.”
Glencore told Reuters it sold 120,000 tonnes of mixed kerosene and power kerosene, which was stored at a Singapore “tank farm”. The customer, Guangdong Zhenrong Energy, took the cargo away in four ships over a period of about two months. “These were cargoes that were sold ‘free-on-board’ at Singapore to a Chinese customer – the title and economic interest transferred to the customer at Singapore,” a Glencore spokesman said. “It’s not clear to us why our field officer was arrested. We presume it was to help the authorities.”