Top oil trader Vitol is increasingly dominant in European oil markets, taking a stranglehold on Urals crude to the Mediterranean and the naphtha and gas oil markets that rival traders say make it extraordinarily influential over prices.
Traders said the scale of Vitol's grip over the Urals crude market to the Mediterranean and European naphtha, used in the petrochemical industry, is unprecedented. The Swiss trader with revenues of $297 billion is also becoming a dominant player in the barge market for European heating oil and diesel, or gasoil.
"I cannot remember anyone being so dominant in my 20 years plus on this market," said a veteran Russian oil trader of the Urals market. "BP, Shell, Gunvor, Total all tried to play big in the past decade but Vitol's current play simply dwarfs it".
Vitol declined comment for this article.
It is not unusual for oil majors or big trading houses to build large positions in over the counter European oil markets and such strategies are not restricted by regulation.
Data compiled by Reuters shows Vitol marketed more than half of the standard 140,000-ton cargoes of Urals delivered via Black Sea export terminals over the past three months.
Its stranglehold was even greater than its half share of those cargoes might suggest because most owners of other shipments did not offer them for sale on the spot market, preferring to process the oil at their own refineries.
The scale of Vitol's dominance in European naphtha trade is even greater and has grown over the past year, culminating in the purchase of 52 cargoes in December, about 85% of the volume in the short daily trading "window" operated by price assessor Platts.
Platts assesses trade in its window to set prices in oil markets that are used to settle contracts for cash delivery.
"Many ex-naphtha traders are now sleeping under bridges in London, Singapore and Geneva," one naphtha trader joked.
Trading in crude oil and refined products in Europe is shared mostly among the top five trading houses - Vitol, Glencore, Trafigura, Mercuria and Gunvor - and the trading units of oil majors BP, Shell, Total, ENI and Statoil.
The trading units of smaller refiners, also compete.
But high oil prices and the consequent rise in the cost of financing has discouraged smaller traders as well as refiners, who struggle from weak refining margins.
Vitol's mastery of the Urals Black Sea market to Mediterranean refiners has severely reduced traded liquidity from what for many years was one of Europe's most active physical crude markets.
Traders say the reduction in trade has reduced market transparency and made it more difficult for pricing agency Platts to assess the value of Urals.
Liquidity in the Platts window dried up after Vitol won the lion's share of Mediterranean Urals cargoes at a 6-month tender of state Russian oil company Rosneft.
Combined with Vitol's share in marketing cargoes from Kazakhstan, it obtained a dominant role..
Dealers said Vitol sold a Urals cargo to Shell in the window in early November at benchmark dated Brent minus 55 cents.
Then came a pause in any significant activity in the window, which continued for a month, an exceptionally long period of stability for the market.
Traders who dealt with Vitol said it had no interest in offering cargoes in the Platts window during the period because it was selling them privately at up to 50 cents above Platts assessments during November and some weeks in December.
"If you needed volumes, Vitol was your only address to go," one trader said. "But you had to pay up."
"Making the weather"
In the naphtha market, traders said Vitol began to emerge as a dominant trader for physical cargoes a year ago.
A Platts analysis published around that time said that Vitol had undertaken the biggest buying spree ever seen by an individual firm in its window since 2005.
In the months that followed, Vitol beat all previous records. Between February and September, it was the main buyer in every month except May and August.
In December, Vitol bought 52 cargoes or around 85% of the volume traded during the window, worth an estimated value of $650 million.
Vitol's buying helped lift the market backwardation on naphtha, increasing the value of prices for prompt delivery versus prices in the future.
Backwardation is typically a sign of tight immediate supplies.
But most European refiners at the time were increasing supply as they returned from seasonal maintenance, which in theory should have depressed prompt prices versus future contracts.
The steady rise in prices was such that petrochemical firms like BASF and Dow Chemical opted to sell naphtha to Vitol and others rather than keep it in storage.
Vitol's buying spree prompted traders to call Vitol itself the biggest factor on the naphtha market.
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Keywords : BASF BP crude oil diesel Dow Chemical Eni EU Europe oil European oil market gasoil Glencore Gunvor heating oil Mercuria Naphtha naphtha trade Oil oil industry oil market oil pricing oil trade oil traders oil trading petrochemical industry petrochemicals Platts Rosneft Shell Statoil Total Trafigura Ural oil market Vitol VItol dominance in Europe