Oil major BP has clashed with rival Vitol
in the Nigerian crude market, buying up cargoes and taking a big
derivative position that may have raised costs for European refiners,
according to Reuters.
in the Nigerian crude market, buying up cargoes and taking a big
derivative position that may have raised costs for European refiners,
according to Reuters.
New trading opportunities arose from
August, when broker Sunrise started the first derivative for Nigeria’s
four largest crude oil grades – Bonny Light, Forcados, Qua Iboe and
Bonga – mirroring derivatives trading in the North
Sea.
August, when broker Sunrise started the first derivative for Nigeria’s
four largest crude oil grades – Bonny Light, Forcados, Qua Iboe and
Bonga – mirroring derivatives trading in the North
Sea.
The derivatives, known as contracts for
differences (CFDs), allow traders to bet on whether premiums of the four
Nigerian grades versus the Brent benchmark will rise or fall.
differences (CFDs), allow traders to bet on whether premiums of the four
Nigerian grades versus the Brent benchmark will rise or fall.
The CFDs, also known as swaps, can be
used to hedge against price fluctuations during the voyage of a physical
cargo to a consumer, which can take weeks. But CFDs can also be used to
take a speculative position.
used to hedge against price fluctuations during the voyage of a physical
cargo to a consumer, which can take weeks. But CFDs can also be used to
take a speculative position.
According to five traders familiar with
the developments, who asked not to be named because they are not allowed
to speak to the media, BP quietly built a long position of up to 10
million barrels in the African CFDs contracts
in August, betting the premium of the grades to Brent will rise in
September.
the developments, who asked not to be named because they are not allowed
to speak to the media, BP quietly built a long position of up to 10
million barrels in the African CFDs contracts
in August, betting the premium of the grades to Brent will rise in
September.
Against BP in the paper market were six
trading desks, including trading giant Vitol, which took the opposite
side of the bet and went short CFDs, betting that African grades’
premiums to Brent would fall, according to trading
sources.
trading desks, including trading giant Vitol, which took the opposite
side of the bet and went short CFDs, betting that African grades’
premiums to Brent would fall, according to trading
sources.
The paper deals were done on a back-to-back basis with only BP, Vitol and five other companies aware of the developments.
BP said it does not comment on trading
positions. “However, BP welcomes the introduction of the new West
African swap to provide greater transparency and aid price discovery in
the West African crude market,” it said on Friday.
positions. “However, BP welcomes the introduction of the new West
African swap to provide greater transparency and aid price discovery in
the West African crude market,” it said on Friday.
The trades took place in what has long
been a regulatory gray area. London’s Financial Conduct Authority, which
does not regulate London trading in the West African crude market, but
does oversee the UK Brent crude benchmark,
declined to comment.
been a regulatory gray area. London’s Financial Conduct Authority, which
does not regulate London trading in the West African crude market, but
does oversee the UK Brent crude benchmark,
declined to comment.
BP does not produce oil in Nigeria and
has not been a large trader of Nigerian oil in recent years, although it
has bought some cargoes for its refining system.
has not been a large trader of Nigerian oil in recent years, although it
has bought some cargoes for its refining system.
After quietly building its paper position
in August, BP launched a flurry of bids on the Platts system in
September for physical cargoes of Nigerian oil.
in August, BP launched a flurry of bids on the Platts system in
September for physical cargoes of Nigerian oil.
BP bid for a total of 22 Nigerian cargoes
loading between Sept 3-12, a previously unseen volume in the West
African crude market, where a whole month can sometimes go without a
single public bid or offer in the Platts window.
loading between Sept 3-12, a previously unseen volume in the West
African crude market, where a whole month can sometimes go without a
single public bid or offer in the Platts window.
BP’s bidding activity ushered premiums of
the African grades against the Brent benchmark to as high as $1.70 per
barrel compared to a premium of $1.20 a barrel in August, when BP was
building its CFDs position.
the African grades against the Brent benchmark to as high as $1.70 per
barrel compared to a premium of $1.20 a barrel in August, when BP was
building its CFDs position.
A difference of 50 cents per barrel would in theory bring a profit of $5 million on a 10-million-barrel CFD position.
The rise in premiums in the physical
market made BP a big winner on its long position on the CFDs trade,
while Vitol was a loser, according to traders.
market made BP a big winner on its long position on the CFDs trade,
while Vitol was a loser, according to traders.
In reaction, Vitol spent over $500
million to buy seven cargoes outside the Platts system from oil majors
Total and Shell, paying premiums above $1.70 per barrel, according to
three traders familiar with the developments.
million to buy seven cargoes outside the Platts system from oil majors
Total and Shell, paying premiums above $1.70 per barrel, according to
three traders familiar with the developments.
The trading house then re-sold the
cargoes on the Platts system to BP at premiums ranging between
$1.55-$1.75 per barrel, effectively accepting a loss on the physical
trade but limiting its losses on the CFD side.
cargoes on the Platts system to BP at premiums ranging between
$1.55-$1.75 per barrel, effectively accepting a loss on the physical
trade but limiting its losses on the CFD side.
“Tensions were running huge between BP and Vitol. It was a high stakes game,” said a trader familiar with the development.
Vitol declined to comment on the story.
S&P Global Platts said it always
ensures bids and offers are firm, performable and tradeable and that its
price assessments are reflective of market value.
ensures bids and offers are firm, performable and tradeable and that its
price assessments are reflective of market value.
“We have seen a marked increase in the
past several weeks of transparent information in the West African crude
market,” said Jonty Rushforth, senior director at S&P Global Platts.
past several weeks of transparent information in the West African crude
market,” said Jonty Rushforth, senior director at S&P Global Platts.
“Alongside the increase in physical
information we have seen a growing derivatives market,” he added. “As
the importance of that market globally has grown, we have seen the
broader market embrace risk management tools related
to it.”
information we have seen a growing derivatives market,” he added. “As
the importance of that market globally has grown, we have seen the
broader market embrace risk management tools related
to it.”
Market participants said the main losers from the developments in the West African market will be refiners.
The NNPC sets its monthly official
selling prices (OSP) to long-term crude buyers, mainly refiners,
retroactively and based on prices in the Platts system.
selling prices (OSP) to long-term crude buyers, mainly refiners,
retroactively and based on prices in the Platts system.
“This is very bad from a refiners’
perspective. Every seller is now asking high prices and when they show a
cargo, all they say is: “If you don’t buy, we’ll just sell to BP,” said
a source with a European refiner.
perspective. Every seller is now asking high prices and when they show a
cargo, all they say is: “If you don’t buy, we’ll just sell to BP,” said
a source with a European refiner.
