CPC Corp, Taiwan (CPC, 台灣中油) yesterday posted a pretax loss of NT$17.5 billion (US$581.36 million) for the first quarter due to the effects of the COVID-19 pandemic and faltering crude oil prices.
“The spread of the coronavirus has greatly dampened market demand, leading to a drop in oil prices, which fell even further after the feud between major oil exporters started,” CPC vice president Fang Jeng-zen (方振仁) told the Taipei Times by telephone.
By yesterday, the price of international benchmark Brent crude oil had recovered to around US$20 per barrel, but was down from US$61 to US$63 per barrel in January, Fang said.
Photo: CNA
Although the decline in oil prices might represent lower costs for CPC, Fang said that this is not reflected in its first-quarter losses due to the three-month interval between shipments and end sales.
“A shipment takes on average more than 20 days to arrive [in Taiwan] and needs another 20 days of precipitation before we can start the refining process,” he said.
“We are bearing costs tied to higher oil prices [from a few months ago] while quoting prices for domestic deliveries based on a formula that accounts for current market fluctuations,” Fang said, adding that mid to long-term contracts, such as three-year contracts, account for a considerable portion of the firm’s purchases.
Its weighted oil price formula — 70 percent Dubai crude and 30 percent Brent crude — is adjusted on a weekly basis.
CPC’s losses were exacerbated by the cost of holding an inventory of a state-imposed 60-day reserve and a self-imposed reserve tied to daily operations, he said.
As the price of US oil futures plummeted on Monday, with benchmark West Texas Intermediate (WTI) closing at a historic minus-US$37.63 for deliveries next month, Fang said that the CPC might see more losses this month.
However, this would not lead to negative prices for domestic deliveries, he said.
“Those [WTI prices] are quoted for the futures market... It is impossible for the [same] phenomenon to occur on the spot market, which takes into consideration factors such as operational costs and other costs,” he said.
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