By Ronnie Lim
SINGAPORE – Volatile oil prices in the first half of the year forced some firms to exit the business, but Singapore’s oil trading hub remains healthy as several new entrants are seizing the opportunity to get into the game.
BT understands that one such player is Bank of China (BOC), whose subsidiary is said to be in the process of setting up a fuel oil and distillates trading desk here. This makes BOC the first big Chinese bank to set up an oil products desk in Singapore.
“High costs of crude and oil products and tighter LC (letters of credit) lines have made it a difficult market in which to trade,” a trading source said of the first two quarters.Crude traders have been hit by high prices, with Brent staying largely above US$120 a barrel earlier this year, as well as market backwardation – a situation whereby deliveries in the near future have a higher price than those for more distant delivery, according to the source.
Chinese oil giant PetroChina, with a half share in refiner Singapore Refining Company, already has a substantial trading operation here, as does China Aviation Oil, which has expanded its trading desk beyond its initial charter of supplying jet fuel to China’s main airports.
Newcomer BOC joins French gas and power group GDF Suez, which opened its Singapore trading office last week to trade oil, coal and Asian LNG contracts.
Another trader said that a significant player is top-three global commodity trader Trafigura, which last month said that Singapore, rather than Switzerland, would be its main trading centre and “the main booking entity for the group’s trading activities”.
The movements of oil traders are part of the changing scene. Former Shell trading veteran Michael Ng is leaving Chinese trader Kangqi together with five or six of his team members to start a new company to trade crude, sources revealed. Swiss commodity giant Glencore is also said to have lost the services of a few traders, who made their money after its recent IPO.
And while some financial institutions such as Nomura and Credit Agricole have pulled out of the commodity trading business, China’s Brightoil Petroleum – which brought over almost the entire fuel oil trading team of BP Singapore when it started here in late-2010 – is said to have become one of the most active players in Singapore, with record marine fuel sales.
“With credit tightening in Europe, there has also been increased demand for risk management and hedging,” said another trader, adding that this has resulted in more oil derivative and swap deals being done.
The trader also noted the recent trend of prominent bankers moving to oil trading companies. “It’s a sellers market, especially for those with (trading) experience,” he said.
Though the trader said it was difficult to estimate the trade volumes done here in the first half “because much of the oil trades are over-the-counter and are not cleared or reported”, another trading source’s estimate is that “volumes probably fell by about 15-20 per cent in Q1, with Q2, which saw a 15 per cent dip, faring just slightly better”.
“But the oil market here, both paper and physicals, is coming back. We expect volumes to push up once Europe stabilises. The market is also likely to be propped up given the US election later this year. So the second half will be better,” the trading source reckoned.
This article was first published in The Business Times.