Middle East oil refiners take more active role in trading as NOCs expand: MPGC panelists

Refineries are increasingly becoming more active in trading with national oil companies in the Middle East setting up their own operations, panelists told the Middle East Petroleum and Gas Conference in Dubai.

"The only way to maintain the value of your carbon assets is to have a trading arm that is able to open up new markets," Carmen Lopez-Contreras Gonzalez, head of trading research and analysis at Spain's Repsol, told the conference in a panel about making the most of refineries in the energy transition.

NOCs in the Middle East have been setting up their own trading operations in the past decade, after solely being focused on getting crude out of the ground, said Iman Nasseri, managing director, Middle East, at FGE.

"We're seeing more and more trading companies dealing with the products of the NOC refineries popping up in this region and taking a more active role in the optimization of those projects," he said.

Kuwait is the latest Middle East NOC to join Saudi Arabia, the UAE, Oman and Bahrain to set up trading arms at their state-owned crude producers to capture a slice of a lucrative market dominated by independent commodities traders such as Gunvor, Trafigura and Vitol. In March, Bahrain's Bapco Energies announced plans to start trading oil products from its refinery in Sitra in a joint venture with France's TotalEnergies. The UAE has trading operations for both crude oil and refined products.

Nasseri also pointed to Abu Dhabi National Oil Co's crude flexibility project at its 418,000 b/d Ruwais West Refinery in Abu Dhabi to accept more crudes from other countries, freeing up its own higher-value Murban grade for exports.

"Refiners have started to take non-domestic crude. That's also part of optimization," Nasseri said.

Murban is also the backbone of the Murban futures contract introduced in 2021 on the ICE Futures Abu Dhabi exchange as ADNOC looks to boost Murban's liquidity to help support the contract.

"Refining has to be in the market and to be prepared for what is coming in the market," Gonzalez said. "Those can only be done by having your trading arm close to you so you are prepared for optionality, for blending, for changes in the market, for using the refinery as storage. Whatever possibilities in the market that you have. That's a change that we have seen in the last five years that we are going to see going forward, especially with the energy transition."

For now, refining cracks are "healthy," Gonzalez said. "Probably not as much as last year. But they're healthy compared to the historical range."

As the driving and vacation seasons take hold in the US and Europe and the Middle East's power plants need more fuel oil for summer cooling, "everybody is expecting healthy demand," she said.

Moreover, refinery utilization could actually drop because of hot weather.

According to Spencer Welch, global head of oil markets midstream and downstream consulting at S&P Global Commodity Insights, a key part of oil refining requires cooling of gases to turn back into liquid, but refineries only have a certain cooling capacity such as fans. When it gets too hot, the refinery is unable to condense all the gas and has little choice but to reduce the crude processing rate, he said. Other options are to flare the gas or switch to processing heavier crudes.

"We have more and more heat waves in Europe and the US and refinery utilization is lower in those cases," Gonzalez said. "I think this will be repeated this summer."