[Reprinted with permission of SUSTG.org]
Lucien Zeigler | SUSTG Analysis
Saudi Arabia has long been a dominant force in global oil markets, “but has never been an oil trader.” That changed on January 1st, 2012, when Saudi Aramco began operations at Aramco Trading, a wholly owned company subsidiary.
The new Aramco Trading marks an expansion in Aramco’s downstream investment portfolio in the Kingdom and overseas, according to the company. “Formally established as Saudi Aramco Products Trading Company, the new entity will replace the Product Sales and Marketing Department (PSMD) in importing and exporting refined petroleum products, commonly known in the industry as “system balancing” of refined petroleum products,” the company noted on its Web Site.
The Dammam-based trading subsidiary has 80 employees and “will represent the company’s interest in sales and purchases of refined petroleum products such as condensates, naphtha, gasoline, middle distillate fuels, fuel oil and residual products and bulk petrochemical products,” Aramco said.
The change for Aramco amounts to a “significant cultural change,” Reuters noted, pointing to comments made by Aramco Trading CEO Said al Hadrami in Bahrain this week.
“At a time when the West’s commercial oil majors are turning their back on refining operations, …Saudi Aramco is seeking to become the world’s largest integrated energy company – handling every stage of the supply chain from well to forecourt,” Reuters reports. Citing a senior Saudi oil executive, the outlet reported that the decision to set up Aramco Trading was a 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.”
When interviewed by RISK magazine in April of this year, al Hadrami said that “the scope of Aramco Trading’s business will mirror Saudi Aramco’s downstream business, which is expected to increase in size and complexity.”
“We see opportunities to trade at locations outside Saudi Arabia and to trade a wider variety of finished and unfinished products such as naphtha and sulphur. As we are expanding our downstream operations, we seek to improve ship utilization and inland logistics capabilities – for storage and blending – to get the maximum value from the supply chain.”
When asked if Aramco Trading “intend(s) to take positions in energy markets in order to profit from expected price movements,” Said al Hadrami said that his company’s role “is to undertake and enhance the system balancing of refined petroleum products to optimise and support Saudi Aramco’s expanding in-kingdom and overseas downstream investment portfolio, and to better capture trading opportunities in our global system. Aramco Trading will focus on optimising its inherited system positions.”
Al-Hadrimi also noted that “Aramco Trading will participate in oil derivatives where necessary to hedge price risk. This will be done to mitigate severe fluctuations in market conditions.”
Aramco Trading is currently handling over 500,000 bpd in refined products, condensate and sulphur, and according to reports will soon dial that volume up to 1.5 million bpd.
To view the SUSTG report with additional links, click [here].
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