January 28, 2018, by Bloomberg
State oil companies like Saudi Aramco are expanding their crude sales and refining capacity to better compete in a market flush with supply.
Saudi Aramco’s trading unit started swapping the kingdom’s crude oil for products refined in other countries, allowing the company to tap new markets, according to its chief executive officer.
The company has supplied crude to refiners in the Mediterranean region and gotten fuel in return, Ibrahim Al-Buainain, chief executive officer of Saudi Aramco Products Trading Co, said. The refined products have been sold in Europe, North Africa and the west coast of Saudi Arabia, and the aim is to do more of the processing deals, Al-Buainain said.
“In the Mediterranean there is plenty of spare refining capacity,” Al-Buainain said. “That’s creating opportunities for trading.” Al-Buainain said the company was trading small amounts of Saudi crude in the processing deals and that the swaps allowed it to reach new customers.
Saudi Arabia is the world’s biggest crude exporter and the kingdom is preparing to sell shares in state energy producer Saudi Arabian Oil Co., also known as Aramco, in what could be the world’s biggest initial public offering.
The strategy of dealing in Saudi crude is a change for Aramco Trading which previously bought and sold mostly fuels like gasoline, diesel or fuel oil. Last year the unit started trading crude produced by other countries.
State oil companies like Saudi Aramco are expanding their crude sales and refining capacity to better compete in a market flush with supply. Crude from US shale oil fields and from Russian deposits is increasingly vying for buyers in Asia, the biggest market for Middle Eastern producers.
“They have to adapt to the market and look to take advantage of opportunities to improve profitability,’’ said Bassam Fattouh, director of the Oxford Institute for Energy Studies.
Aramco has stakes in 5.4 million barrels a day of refining capacity in Saudi Arabia to South Korea and the U.S. The company aims to double that capacity within a decade even as it battles other crude producers for market share. The trading unit may also supply crude to Aramco’s 600,000 barrel-a-day Motiva Enterprises LLC refinery in Port Arthur, Texas, the biggest refinery in the U.S., according to Al-Buainain.
“Saudi Aramco is developing the trading business to take advantage of the expansion in their refining business,’’ Oxford’s Fattouh said.
Aramco is increasingly joining integrated oil companies like BP Plc and Royal Dutch Shell Plc that aim to take advantage of their pipelines, storage units, refineries and oil production fields to take advantage of trading opportunities and boost profit. It’s a shift for state oil producers which traditionally pumped crude and shipped it to buyers under long-term contracts.
The wholly owned trading unit of Saudi Aramco has done at least two processing deals with Saudi crude and it’s also traded crude and condensate produced in other countries, Al-Buainain said.
Aramco Trading handles about 1.5 million barrels a day of refined fuels, and wants to increase that to more than 2 million barrels, Al-Buainain said in May. It also plans to buy crude from other producers to supply some of Saudi Aramco’s joint-venture refineries globally, he said Wednesday.