Singapore — Freepoint Commodities believes that Asia's rising appetite for US crude will provide the company one of the best opportunities to grow its trading volumes and expand its Asian footprint, Ouyang Xiuzhang, the Asia-Pacific CEO of the US trading house said.
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As Asian refiners look for more US crude, and companies on both sides of the Pacific invest in logistics to smoothen the trade flow, the Connecticut-based merchant is building relations with Asian oil companies and making investments to ensure that it can grab a bigger piece of the pie, Ouyang told S&P Global Platts in an exclusive interview.
"US crude flows to Asia will be the big theme as the US is a big incremental producer now and Asia is an incremental buyer. We are a US-based house and we are now based in Asia. So we are naturally in those discussions," Ouyang said.
"We were one of the companies that were invited by Donald Trump's delegation to Beijing last year. So we are pretty active in that space. We are keen to grow those volumes."
Assuming that US crude volumes to some Asian countries double over the next five years, it was not unrealistic to aim for an yearly growth of 20% in volumes over the next five-year period, he said.
"US crude volumes to China will be doubling. The pie is doubling there, so we will aim to double our volumes," he said, adding that he expected India and Southeast Asian countries to also look to the US for the incremental supply.
Underscoring the US-Asia trade flow, China's Unipec recently bought around 16 million barrels of US crude oil for loading in June. This marked the biggest volume ever to be lifted in a month by the company, Platts reported previously.
Freepoint was launched in 2011 with private equity backing from Stone Point Capital fund, manager of the $15 billion Trident Funds. David Messer was appointed its CEO. Before joining Freepoint, Messer led Sempra Energy Trading Corp., which was subsequently sold to The Royal Bank of Scotland, formally forming the RBS Sempra Commodities joint venture in April 2008.
To make an aggressive push in Asia, Freepoint in 2016 brought on-board Ouyang, who had previously headed oil and metals businesses for JP Morgan, Goldman Sachs and Noble Group.
As banks reduce exposure to commodities amid pressure from regulators, Freepoint is well-placed to provide customized solutions to customers -- from cargoes to risk management, Ouyang said.
"We are definitely in the zone of providing total solutions to our clients. Clients want new cargo sources, clients want investors to help them to enhance infrastructure, clients want price risk management," he added.
Freepoint's global commodities turnover is about $30 billion. In 2017, the company moved 5 million to 6 million barrels of oil liquids a week, Ouyang said, adding that those volume will continue to grow.
The company has managed to successfully build relations with Asian national oil companies in key importing countries that is helping it boost trade volumes, he said.
"In the oil and gas space, we have expanded from doing just some paper trading to now doing physical and paper trading in crude, gasoil, gasoline, jet fuel, fuel oil -- almost across the barrel," Ouyang said.
"We are trading with many national oil companies. Not only are we moving arbitrage cargoes from the US to Asia, we are also moving some clean products from Asia to the US and Latin America," he added.
Freepoint was not actively involved in bunker fuels and LNG in Asia but it is a segment the company would look at in the future.
"We are a key bunker fuel player in the US. We think that is an edge we can leverage. Our US operations can assist us to develop that market in Asia," he said, adding that LNG was also an interesting market where the US-Asia trade flow could be capitalized on.
CHINA CRUDE FUTURES
Freepoint has been a regular participant in the recently-launched crude oil futures contract by the Shanghai International Energy Exchange, Ouyang said, adding that the futures contract certainly had potential to grow.
"If you are looking at it as a benchmark going forward, this has a long way to go. But if we look back in history, the launch of the Brent contract even needed a few amendments. So it's not going to a very straight line," he said.
"But does it have the potential? I would think so. We are sitting in Asia knowing that Asia does not have a crude futures benchmark, so we certainly need one for this time zone," he added.
Commenting on the possibility of any potential demand destruction in Asia because of rising oil prices, Ouyang said that consumption growth prospects were looking promising despite prices firming.
"If you believe that this is a demand-led incremental price rally, then the economies in the region are doing well and the economies can absorb higher prices," he added. "General demand seems to be fine."
Ouyang said that the company was also trying to ensure that it was ahead of the game in adopting some of the technological changes including blockchain.
"We are very open minded about the new technology. As we know that existing flows of physical margins is getting thinner and thinner. We have to be ahead of the curve. We have done some spot transactions with NOCs using the new technology. We are looking to do more," he added.
-- Sambit Mohanty, email@example.com
-- Edited by Irene Tang, firstname.lastname@example.org