SINGAPORE, 23 March 2005 — Oman will take its first step into oil trading this summer with the help of a leading private firm, becoming the most aggressive Middle East producer to venture into speculative trade, industry sources and officials say.
The likely winner of a tender to set up a semi-state joint-venture to trade oil will be Dutch trader Vitol, one of the biggest private energy trading houses in the world, a senior government official told Reuters. “There were two companies on the shortlist. Unless negotiations go very wrong, it should be Vitol,” he said. The final decision is expected within two weeks, another source said.
The joint-venture will be independent from Oman’s Ministry Oil and Gas (MOG), the official added, and will not be given exclusive rights to market Omani crude or oil product output, as is the case with most state trading firms in the region. State-owned Oman Oil Company, set up in 1992 with interest in exploration, production and downstream operations, is expected to be the majority shareholder, sources said.
The new firm, based first in Muscat with a view to opening an outlet in Singapore, will buy Oman crude from the MOG and resell it on the spot market, as other lifters regularly do. “Of course it is feasible. They are a producer,” a trader said. “But I don’t know their objectives.”
Until now, the MOG has sold its crude directly through term contracts with trading firms and end-users, many of whom wonder what role the new firm will play. “Their intention is to sell 500,000 barrels a month of Oman by themselves. It is not enough. I am afraid they will have little power in the market,” another trader said. But the company will later expand into products trading, and may trade non-Omani crude and products as any trading company, industry sources say.
Oman Oil Company also holds a 7 percent share in the Caspian Pipeline Consortium (CPC) and has capacity rights to transport its potential oil production in Kazakhstan through the line, meaning it could have a position in the Mediterranean market. CPC Blend crude oil export volumes are expected to rise nearly 200,000 bpd to total 650,000 bpd this year. The new trading venture is expected to take on riskier speculative positions in the oil market, a rare move among oil producers who typically take a more conservative stance.
The UAE’s Emirates National Oil Co. (ENOC), which primarily markets and hedges oil products and crude for the government, is so far the other most significant example of an active presence of a Middle East producer in the markets. Algeria’s state oil firm, Sonatrach, set up a derivatives arm last year, the only other OPEC nation to do so.
At the least, the Omani joint-venture is likely to hedge Omani crude and product output, sources say.
Oman’s decision to set up a trading company might be a sign that the government is set to abandon retroactive pricing of its crude, a move that would open up the country’s sour grade to a wider and much-needed role as a regional benchmark, sources say.
Oman crude is now used, together with Dubai, to price more than 10 million bpd of Middle East crude and has long been touted as a replacement to Dubai, whose output has fallen to 100,000 bpd. “In the next two or three years, Oman will become a benchmark,” said Fereidun Fesharaki, president of Hawaii-based oil consultancy FACTS. “It is matter of time.”
Oman’s output is also declining but from a higher base, with output set to fall below 700,000 bpd this year against 820,000 bpd in 2003, another reason the government may be taking a more active role in the market. With increasingly volatile prices, record oil company profits and the influx of short- and long-term investors in the market, state firms may become more adventurous.
BP, the world’s second-largest oil company by market capitalization, made $1.4 billion from trading oil products and derivatives last year.
