The trading arm of Saudi Aramco made its debut in the daily pricing window for Jet CIF Northwest Europe Cargoes this week in what could prove to be a milestone moment for a market where local refiners are increasingly under pressure from Middle East imports.
Let's start with the pricing details…
On 30 November, Aramco Trading Company (ATC) offered 27,000 MT for delivery into CIM Le Havre on 15-19/12 dates on the BW Neso vessel. Pricing was at CCM+$3.25 over Full-Month Dec. General Index valued the cargo at a $30.95 premium to ICE LSGO Dec21 or $630.45/MT on an outright basis. The offer didn’t trade, but it was competitively priced against other bids in the MOC.
What else do we know about the cargo?
At 1840 GMT on 30 Nov, Kpler tanker tracking showed the BW Neso, a Long Range 2 tanker which can carry around 100,000 MT, docked at the Petro Rabigh refinery on the Red Sea. It would take around 16 days to sail from Rabigh to Le Havre at a speed of 10 knots.
What's so special about Aramco joining the NWE Jet MOC?
In one sense this isn't a big development. There's nothing new about jet fuel being exported to NWE from the Mideast Gulf. It's the largest-single origin region: 43% of the total in 2019 and 38% in 2020, according to Kpler. While Saudi exports to Europe overall have fallen during the pandemic – 82,000 b/d or 3.8mn MT in 2019, 40,000 b/d in 2020, and 25,000 b/d this year – Petro Rabigh has actually seen exports bound for Europe rise to 8,000 b/d or 348,000 MT, up from 6,000 b/d in 2020 and 3,000 b/d in 2019.
The business of arbitraging high-value products such as jet fuel and ULSD over long distances requires big financing. Taking General Index's valuation of Aramco's first cargo offer as a guide, BW Neso could be carrying around $63 million worth of jet fuel! And most arbitrage traders will have multiple shipments in play at any given time. So that requires very deep pockets.
It's why this segment of global oil trade has traditionally been the playground to only the biggest traders, such as BP, Shell, Totsa, Unipec and Vitol. Saudi Aramco-owned ATC won't have trouble finding the cash. It opened a London branch last year on a self-declared path to "become one of the top trading companies in the world". Its entry in this key spot pricing window is a clear statement of intent to making this a reality.
Some other thoughts...
1) ATC has long been the named charterer in daily fixture reports for jet cargoes moving from the ME-Europe. But today's development marks a decisive step-up in activity and suggests it's ready to play a more strategic role in European jet fuel pricing.
2) If ATC places more Saudi jet cargoes directly into NWE, could that reduce the share of FOB cargoes ex-Saudi made available to the existing arbitrage players? Quite possibly. More cargoes could be placed directly from origin into the destination markets, reducing the need for the middleman role the legacy traders have fulfilled. And if Adnoc Global Trading were to follow suit, that would likely only exacerbate the trend.
3) Over the past 18mths, Adnoc, Novatek, Neste, Mabanaft, Saras have also all been approved to take part in the physical jet window, according to notes published by Platts. All are yet to take part. Will ATC's entry encourage its Adnoc counterparts to make a move of their own...?
4) That leads me onto one last point: what could this mean for Europe's refiners?
The CEO of Italian refiner Saras, Dario Scaffardi, has said Saudi refiners are "oblivious to economic considerations" and their exports are "putting pressure on prices" in Europe.Punchy stuff from someone at the coal face of European refining.
We reported on the impact of ever-expanding refinery capacity in Saudi Arabia and elsewhere in the Middle East in a special report earlier this year (see pages 7-8 on our LinkedIn post).
For the consumer (as Scaffardi intimates), the flip side is potentially cheaper prices. And with the prospect of additional green taxes on aviation fuel looming on the horizon, airlines might well welcome that too.
ATC's entrance into the European jet cargo pricing window can therefore be viewed as part of a wider trend of increasing sales into Europe which could mean cheaper prices for end consumers, and also spell yet more trouble for local refiners unable to compete.
While Aramco’s entry may boost the number of active participants in the daily MOC process (undoubtedly a good thing) it could at the same time reduce traded volumes elsewhere in the spot market, as Aramco holds onto more of the cargoes which, until now, have been available for optimisation by other traders.