The trading arm of Sinopec lost $690m on hedges taken on crude oil in the fourth quarter, as the Chinese oil group confirmed the damage inflicted by what it has called “inappropriate trading strategies”.

Unipec, its trading arm, was caught out when global oil prices dropped after the Trump administration’s last-minute decision to grant waivers to Iran’s customers on sanctions against its oil exports, setting off a brutal fourth quarter sell-off that saw oil fall from above $86 to below $50 a barrel.

Sinopec announced in late December that it was suspending two executives, including Chen Bo, Unipec’s ambitious head, leading to widespread speculation in the market that the losses had been substantial.

The confirmation of a $690m (Rmb4.65bn) loss amounts to one of the largest wrong-way trades for a Chinese company, although it is at the lower end of industry speculation, which had ranged as high as $2bn.

“Investigations have shown Unipec has applied some inappropriate trading strategies in hedging crude oil business,” Sinopec said in a statement on Friday to the Shanghai Stock Exchange. “Because of wrong calls on the oil price moves, [the company] incurred losses on the futures side of the hedging when oil prices fell.”

Most traders and analysts in the industry had expected oil prices to rise sharply in the fourth quarter, because they expected the US sanctions on Iran to tighten supply. It is likely that Unipec took a position in futures markets that would allow it to reap profits if oil prices rose, although the exact details of its call have not been made public.

Instead, just three days before the sanctions took effect, the Trump administration announced that it would extend waivers to eight countries that regularly source oil from Iran, including China.

Other domestic and international oil companies were also caught out by the oil price drop, people familiar with the industry in China say, but none as badly as Unipec.

Mr Chen, a confident English speaker who often appeared at international industry events, has remained at the helm of another listed company, Sinopec Kantons, which handles storage and some natural gas and transport businesses.

People familiar with Sinopec said he was well regarded among long-serving executives, but that the company was riven with infighting at the top levels as new managers move in following an anti-corruption purge that decimated the oil industry.

On Friday, Sinopec said its net profit for the full year rose 22 per cent to Rmb62.4bn ($9.2bn) while revenue also rose 22 per cent to Rmb2.9tn. By contrast, net profits for rival PetroChina more than doubled in 2018, to Rmb51.8bn, PetroChina said in a statement to the Hong Kong exchange on Monday.

In both cases, the listed company does not reflect the complete operations of the parent company.

Additional reporting by David Sheppard in London

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