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Page added on May 11, 2012
Saudi Arabia breaks new ground — trading oil
* Saudi opens new oil products trading company
* Aramco Trading to move 1.5 million bpd
* Deals in physical oil, paper and derivatives trading
Saudi Arabia, the world’s largest oil exporter, has long been a dominant force in the oil market – but has never been an oil trader.
That’s changing now as Riyadh seeks to capitalise on its refining strength and run its own oil trading book – buying and selling gasoline, gas oil and other fuel to balance the needs of its expanding system, and to turn a profit.
A new Saudi state-owned company, Aramco Trading, is even venturing into derivatives such as futures and paper trading, a significant cultural change given Riyadh’s deeply conservative business culture.
“We are shifting our mindset from that of a giant oil exporter to focus on adding value to products by trading,” Aramco Trading chief executive Said al Hadrami told an energy conference in Bahrain this week.
The Saudi trading operation is a natural complement to Riyadh’s ambitious downstream drive to double its refining capacity to 8 million barrels per day (bpd) in a decade.
The kingdom’s extra refined oil product output will give it enough volume to trade on the world’s spot market and optimise profits.
“We think that surplus refining capacity produces a lot of opportunities,” said Hadrami.
At a time when the West’s commercial oil majors are turning their back on refining operations, state oil company Saudi Aramco is seeking to become the world’s largest integrated energy company – handling every stage of the supply chain from well to forecourt.
Its downstream push includes an extra 1.2 million bpd of domestic refining capacity that is due online by 2017 to help cover rocketing consumption in the kingdom.
Saudi domestic demand rose by more than 5 percent a year from 2003-2010 to an average of 2.4 million bpd in 2010.
“LOGICAL STEP”
“Aramco products trading makes a lot of sense for a company that is evolving multi-million barrels of refining capacity across the world and needs to participate in the commercial as well as the production side of the sector,” said a senior Saudi oil executive.
Aramco Trading, as cautious as its parent, will take things slowly at the start.
“The first priority will be to balance the kingdom’s supply and demand requirements – selling excess naphtha and fuel oil and buying in gasoline and gas oil,” said an industry source familiar with the company’s strategy.
“But Aramco Trading is also looking to hedge its business.”
Based in the Aramco complex in Dhahran, eastern Saudi Arabia, an 80-strong team includes risk management specialists lured from top Western trading houses. It is an independent outfit with its own payroll and accounts, Aramco officials say.
“We lined up the best in-house talent and hired selectively outside,” said Hadrami, a graduate of King Fahd University of Petroleum and Minerals and the Harvard Business School.
After opening for business in January, the Saudi trading arm is already handling over 500,000 bpd in refined products, condensate and sulphur. It will soon treble that volume to 1.5 million bpd.
Dealing in crude oil, however, is off limits for now.
“It is not in our mandate,” said Hadrami. “It is too large a position.”
Aramco Trading’s official remit at this stage is to handle products from Saudi Aramco’s domestic and international refineries. It is, however, doing some deals with third parties.
Market analysts see Aramco’s move into oil products trading as a sensible evolution, given its strategic position.
“Saudi Aramco is moving up the value chain,” said Olivier Jacob, MD of consultancy Petromatrix in Zug, Switzerland.
6 Comments on "Saudi Arabia breaks new ground — trading oil"
cottager on Fri, 11th May 2012 10:36 pm
Oh my! More speculators online? So oil gonna be more expensive, isn’t it?
DC on Sat, 12th May 2012 5:13 am
So….is this enough to trigger regime-change, even for a (mostly) loyal and trusted lag-dog like the house of Saud? I mean, after all, they must know the real reasons the amerikans invaded Iraq and Libya. Arent they afraid biteing the hand that controls them could lead to a rather nasty slap? Or will the corporations be forced to let this slide, even though it clearly seems aimed at asserting a kind of independence in the oil trading business the empire will literally kill to prevent where it can?
BillT on Sat, 12th May 2012 5:31 am
Actually, DC, I think they know who is the new controller, China. China actually buy more oil from them (the Saudis) than the Us does. It is only a matter of time until the trade is in Chinese currencies or gold. Another step closer to the dollar’s death as the world reserve.
DC on Sat, 12th May 2012 5:55 am
It hardly matters what the saudis ‘know’ though does it? S. Hussein ‘knew’ selling oil for Euros was a smart move. Result, country trashd for over a decade-and him dead, on the orders of the US state dept.
Ghaddfi also knew, a gold backed currency would be a good idea, and keeping the IMF and WB out-result. Country trashed. M.G-also dead, also on orders of the US corporate govt.
Do we still think the US wouldnt turn on even a ‘trusted’ ally, claim they too are working on fake WoMD, or they create anotehr fake insergency which the US will come to ‘rescue’ SA. May never happen, but then again, a lot of people probably didnt think the US would be in the ME forever either, murdering leaders and the poor alike to maintain there failing empire. The US invaded Libya in part, to chase out the chineese and Russans that had perfectly valid deals there. If SA had to be ahh..liberated in a similar manner to shut down this plan, or make things difficult or more expensive for China(and thus less able to ‘
compete’ witht US effectively(, why wouldnt they? There trying to do just that in Syria now as we speak.
Tony Tan on Sat, 12th May 2012 3:59 pm
Its natural. Saudis are the World’s largest oil producer and now they want to trade in it.
Also they want to trade value addition products like Gasoline, Diesel and Jet-fuels which gets them better return. So what will happen to refineries which buy and process crude.
Note : They also have fast growing population which wants better lifestyle.
So now all control of Oil will slowly move from New York/London to Dhahran.
Now the biggest concern is whether they will sell Oil in Dollar or Gold/Silver combo.
Its high time, US starts moving away from Oil to other Fuels so that the country can produce its own fuel and use it.
Kenz300 on Sun, 13th May 2012 3:49 pm
Every country needs to diversify its energy sources and types. Economic security and national security will depend on it. Wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste will help to diversify our energy types. Putting all your eggs in an OPEC basket is a disaster waiting to happen.