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Oil Producers Eye Asia As Western Demand Falters

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Oil Producers Eye Asia As Western Demand Falters Oil Producers Eye Asia As Western Demand Falters SPECIAL PDF REPORT SEPTEMBER 2011 An oil rig lights up Cape Town harbour as the sun sets, August 6, 2011. REUTERS/Mike Hutchings Oil price volatility a concern for Asia Indian Oil bars Vitol from tenders-sources Two reasons why Asia's still thirsty for crude: Clyde Russell Iran imports 4-5 cargoes of gasoline per month-sources Litasco 2011 revenue to rise 10 pct -CEO Iran restores fuel oil export vols from Oct COMMODITIESOIL PRODUCERS SHIVER EYE ASIA AFTER AS WESTERNU.S. CREDIT DEMAND DOWNGRADE FALTERS SEPTEMBER AUGUST 20112011 Oil price volatility a concern for Asia SINGAPORE, Sept 8 (Reuters) - il traders have been the only beneficiaries from this year's sharp swings in energy prices, but even they have been caught off guard at times, falling prey to geopolitics and wider financial market risk appetite swings. That sums up reflections at Singapore's Asia Pacific Petroleum Conference (APPEC) this week, where oil traders, O company executives and business leaders gathered to discuss an increasingly turbulent and volatile trading envi- ronment. Three years on from the deepest recession since the Great Depression, oil producers and trading firms continue to look to Asia as the saviour for energy markets, while Europe and the U.S. struggle to sustain an economic recovery. This tension has made oil markets the most volatile since 2009, complicating trading strategies and giving trading houses an overdose of the price fluctuations they normally thrive on. "It's too much volatility and sometimes it's not easy to develop trading strategies," said Tony Nunan, a risk manager with To- kyo-based Mitsubishi Corp on the sidelines of the conference. "It's more difficult to foresee where good plays will emerge." The International Energy Agency, adviser to industrialised nations on energy policy, last month said a global economic slow- down may stifle oil demand growth next year, warning that tightening supplies could spur more oil price volatility. As with most financial markets, over the past few months oil has been especially vulnerable to risk-on and risk-off waves that buffet commodities, equities, currencies and bonds, as confidence that a global recession can be avoided alternatively sprawls and wanes, sometimes in a matter of hours. That was the case when credit ratings agency Standard & Poor's downgraded the U.S. from AAA in early August. In the second trading session after the downgrade, Asia took an unusual pricing lead and in a matter of less than two hours knocked $5 a barrel off Brent futures, which fell below $100 a barrel for the first time since February. Then, European and U.S. traders returned the market to positive territory, before closing marginally lower. Despite measures initiated by China and India to reign in inflation, which may lead to their economies cooling down, most companies and investors are betting that the world's fastest growing nations will continue to drive oil demand. 2 COMMODITIESOIL PRODUCERS SHIVER EYE ASIA AFTER AS WESTERNU.S. CREDIT DEMAND DOWNGRADE FALTERS SEPTEMBER AUGUST 20112011 WINNERS AND LOSERS How traders perceive volatility also depends on their positions in the run-up to sharp price moves. An example is the weak mood that prevailed in the Middle East crude market in early August, before an unexpected swing that took values to three- month highs. Those who had stocked up on cargoes benefitted from re-selling at much higher prices in the same month. The volatility has not been restricted to crude. Naphtha, a gauge of economic activity because of its use as a feedstock in the petrochemicals industry, has also been subject to violent swings this year. "Traders thrive on volatility to make money," a trader said. "The current price volatility is good for naphtha traders as they can play on the volumes they supply to buyers." While trading houses benefit from some volatility, oil-producing companies prefer a stable price environment which allows them to better plan investment and output in the long term, managing directors from the world's largest oil companies said on the sideline of the conference. "Oil companies need a certain degree of certitude," an executive with an oil major said. "But volatility can be good for trading companies, so it really depends what side of the table you are on." But outside the oil industry, there are few who benefit from excessive swings in prices, and this year has shown how the world economy can be at the mercy of geopolitical events, such as Libya's civil war. "The geopolitical situation has added a lot of volatility to the market," Richard Gorry, director at energy consultancy JBC Asia, said on the sidelines of APPEC. "There are 3 million barrels of oil at risk from countries like Algeria, Tunisia, Syria, Sudan, Egypt, Bahrain and Yemen. But the bigger risk is that the unrest in these countries spreads to bigger producers like Saudi Arabia." Gorry estimates that a further loss of 2 million barrels per day (bpd) of oil output would send Brent to $160 a barrel, slashing demand in East Asia by 600,000 bpd, and North America by 700,000 bpd. A 4 million bpd loss would lead to $260 a barrel, he said. Brent crude futures fell by as much as $16 a barrel in two days in May and as much as $12 in three days a month later. Implied volaility on U.S. crude futures rose to 63 in early August, the highest since April 2009. Indian Oil bars Vitol from tenders-sources SINGAPORE, Sept 8 (Reuters) - ndian Oil Corp has barred Switzerland-based Vitol, the world's largest oil trading firm, from participating in its tenders and other state-run refiners may follow suit, three sources with direct knowledge of the matter said. IOC, the country's biggest refiner, put Vitol S.A. Geneva and Vitol Asia Pte. Ltd Singapore on a list of companies barred I from doing business with it from Sept. 3 as the trader withdrew and modified a binding offer made in a crude import ten- der, the sources said. Officials at Indian Oil declined to comment. Vitol, responding to an email, said it never comments on commercial relation- ships. IOC has informed other state-run refiners about the move and has asked them to explore the possibility of initiating similar action, the sources said. Indian Oil was at one point the country's sole crude importer and used to buy oil on behalf of other companies. State-run firms still work closely on matters such as international trade and retail fuel prices. The ban may allow Vitol's competitors Glencore and Trafigura, which have significant Indian operations and have invested heavily to build their businesses there, to expand in Asia's third-largest economy. A lot would depend on whether other state- run companies follow IOC's lead, traders said. "Certainly this now opens the door for the likes of Glencore and Trafigura to take over from Vitol's position in the tenders," a Singapore-based trader said. "Now the question is will other refiners impose the same action on Vitol? Potentially this could be a major blow to Vitol's trad- ing ops." Other state-refiners would consult the oil ministry on suspending Vitol from participating in their tenders, the same sources said. IMPACT "IOC is like the godfather here, no one messes with it," an India-based trader said. "On the products side, Vitol is a market leader, it picks up a lot of cargoes from India, so if its bids are not there, others would definitely get an advantage." 3 COMMODITIESOIL PRODUCERS SHIVER EYE ASIA AFTER AS WESTERNU.S. CREDIT DEMAND DOWNGRADE FALTERS SEPTEMBER AUGUST 20112011 The impact of this ban for Vitol would be particularly serious for West African grades, traders said. India imports about 80 per- cent of its crude requirement. In the fiscal year ending March 31, it imported about 3.3 million barrels of oil. "It's going to be a huge impact on Vitol because they would lose a big outlet for West African crudes," a Singapore trader said. "India might see higher prices on their tenders." Indian Oil imports about 25 percent of its crude requirement through spot tenders, with the rest purchased through annual term deals. Vitol is not the first trading firm to fall foul of Indian state-run refiners. The second-biggest, Bharat Petroleum Corp , barred Glencore from participating in its tenders in January but within three months lifted the ban following a settlement. India is the world's fourth-largest oil importer. State refiners control nearly two-thirds of the country's 4.17 million bpd refining capacity, which includes Reliance Industries' export-focused 580,000 bpd plant. IOC directly owns 1.08 million bpd of crude processing capacity through its eight refineries, while subsidiary Chennai Petro- leum Corp owns 230,000 bpd. Indian Oil floats tenders almost every week seeking sweet barrels. Mideast trader Gulf Petrochem seeks share of booming Asia market By Humeyra Pamuk SINGAPORE, Sept 8 (Reuters) - nited Arab Emirates-based trader Gulf Petrochem is looking to expand into the Asian market by setting up a trading and bunkering desk in Singapore before the end of the year, the company's chief executive told Reuters. Strong oil demand from Asia has prompted Middle Eastern oil majors as well as traders to expand operations in a U market that is rapidly growing in contrast to the economic gloom in Europe and the United States. "We will start fuel oil and distillates trading as well as bunkering out of Singapore," Sanjeev Sisaudia said late on Wednesday on the sidelines of Asia Pacific Petroleum Conference (APPEC) in Singapore.
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