OPEC’s Oil Giants Give Trading Houses A Run For Their Money

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By Tsvetana Paraskova

OPEC is currently restricting production to keep oil prices from tumbling in an oversupplied market fearful of faltering demand growth. But the national oil companies (NOCs) of the cartel’s largest producers are thinking long term and vying for a large slice of the oil trading pie.

The state-held oil firms of OPEC’s largest producers—Saudi Arabia, Iraq, and the United Arab Emirates (UAE)—plan to significantly boost their respective oil trading businesses in search of additional lucrative sources of income from the huge commercial and marketable oil resources they own. The NOCs in the Middle Eastern producers are already competing with the largest independent oil traders of the likes of Vitol, Trafigura, Glencore, Mercuria, and Gunvor.

In this competition, the NOCs have one huge advantage over independent oil traders, and that is the fact that NOCs own their oil.

According to an S&P Global Platts analysis, state-controlled firms account for 76 percent of the oil production of the world’s 25 biggest oil companies in terms of oil output. In other words, state-controlled giants in the Middle East, Russia, China, Mexico, Venezuela, and Brazil pumped more than three-quarters of the 58.65 million bpd that the world’s largest oil firms by output produced in 2017, according to the S&P Global Platts analysis based on data from Platts, the International Energy Agency (IEA), and company filings.

Now OPEC’s oil firms are set to increase competition in the oil trade by expanding and opening trading offices around the world and looking to significantly boost their oil trading businesses and volumes.

Just earlier this week, an exclusive Reuters piece reported that the Abu Dhabi National Oil Company (ADNOC), which pumps most of the crude oil of OPEC’s third-largest producer, the UAE, plans to launch its own oil benchmark for the region, possibly as soon as November, as part of an effort to boost its regional influence and bolster its oil trading business. The oil benchmark idea is part of a wider ADNOC plan to overhaul its oil trading division and gain more pricing influence for its oil sales. Earlier this year, ADNOC signed strategic partnership agreements with Italy’s Eni and Austria’s OMV, under which the European oil majors bought minority stakes in ADNOC Refining, and the three companies agreed to create a trading joint venture.

Before ADNOC, it was Saudi Aramco—the top oil producer in the world and the Kingdom’s state giant—that started to expand its oil trading business, aiming to be a top oil trader to open new avenues of sales for its oil and to make sure that Saudi crude will have a market for as long as the works needs oil, which, Aramco believes, will be for decades and decades to come.

Earlier this year, Aramco Trading was said to be looking to open an office in London in order to support its expanding oil trading business.

Aramco has already hired staff and is advancing its plans to launch trading at the London desk, market sources told S&P Global Platts this week.

Aramco Trading expects its oil trading volume to rise to 6 million bpd by next year, the company said last month, announcing the opening of its second international office in Fujairah, the UAE, as part of its “global push into new markets to secure buyers for refined products, as well as crude oil.”   To compare, independent oil trading house Vitol, for example, trades more than 7 million bpd of crude oil and refined products, with the crude trade at around 3.8 million bpd.

“Aramco Trading has experienced significant growth in recent years,” Aramco Trading president and CEO Ibrahim Al-Buainain said last month. “We started in 2012 with 600,000 to 700,000 bpd and now we’re operating at more than 4 million bpd — and as the downstream business grows to the level that we want to reach 8-10 million bpd — Aramco Trading will grow together with that business,” Al-Buainain added.

In a message about the company’s trading performance last year, the manager said:

“The year 2018 took the company one step forward toward achieving its goal of being one of the top three trading houses worldwide.”

The State Oil Marketing Organization (SOMO) of Iraq—OPEC’s second-biggest producer behind Saudi Arabia—is also looking to expand its crude oil trading activities with more spot sales and with opening offices outside Iraq.

With plans to significantly grow their trading businesses, the state oil firms of OPEC’s largest oil producers will soon be giving independent oil traders a run for their money.

Crude Oil

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