Many oil producers in the Middle East are increasingly turning to crude trading as a new source of income in response to three years of unreliable oil prices. Saudi Arabia, the world’s largest exporter of oil, is leading the charge. A source recently reported that a subsidiary of state-owned Saudi Aramco is planning to begin trading non-Saudi crude in the near future.
“It is all about optimization,” said a senior oil source close to Aramco.
In 2012 Aramco established the Aramco Trading Company (ATC) to market refined products, base oils, and bulk petro chemicals. Though ATC didn’t initially dabble in crude trading, they now plan to trade non-saudi crude to feed other international joint ventures, such as its Motiva refiner in the U.S. and S-Oil in South Korea.
Former Aramco executive Sadad al-Husseini stated “Moving into trading is a logical progression to Aramco’s strategy to capture calue across the entire oil and products chain.”
“It is a very competitive sector and Aramco’s entry is bound to be prudent and strategic,” he added. “It will focus on the products and markets that suit its interests and this means it must inevitably handle non-Aramco oil and product barrels as well as its own.”
This pivot also fits within Saudi Aramco’s mission to become one of the world’s largest integrated energy firms.
Oil prices remain at roughly half the levels they were in mid-2014 and other OPEC members are following suit.
The state-owned Abu Dhabi National Oil company is also considering setting up a trading unit. A spokesman from the company stated that it is in line with their strategy to, “stretch the commercial value of every barrel that we produce, we are in the early stages of exploring non-speculative, asset-backed trading and are in discussion with various potential industry partners.”
One of those partners might be Kuwait who is exploring the creation of a new firm to market refined products. This would help the Kuwait Petroleum Corporation sell products from its refining venture at Duqm in Oman, according to a source within the company.
Iraq’s state oil marketer has recently partnered with Russia’s Lukoil in a venture in Dubai to trade crude. This could later expand into other refined products and petrochemical trading.
David Fyfe, chief economist of commodities trading firm Gunvor, told Reuters that “They are trying to become more flexible and to capture extra margin within the market.”
Until recently oil trade has been monopolized by major international traders such as Vitol, Gunvor, Trafigura, and Glencore in addition to energy majors such as BP and Shell. But it appears as though that maybe changing.
Article written by HEI contributor Kevin Abbott.