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Highlights

Price impact from attacks short-lived

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LNG shipping volumes up 40% on the year

London — The short-lived oil price spike in the wake of the "nightmare" attacks on Saudi Arabia's oil facilities last month is a reflection of the Middle Eastern oil giant's waning influence in global oil markets, according to the head of Switzerland-based energy trader Gunvor.

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After peaking at $71/b in the immediate aftermath of the attacks which initially took 5.7 million b/d of Saudi output offline on September 14, Brent crude futures retreated sharply and are now trading around $58-59/b, below pre-attack levels of $60.5/b.

Growing fears over the health of the global economy have added a more bearish market sentiment, alongside surging supplies of US shale oil and a weaker outlook for global oil demand growth. As a result, most market watchers see a lower risk premium to prices from supply disruptions in the Middle East.

While the limited price reaction to the Saudi attacks was helped by a quick resumption of most of the capacity, the world's falling dependence on Saudi supplies is key, Gunvor's CEO Torbjorn Tornqvist said.

"I think it's a wake-up call for how less important Saudi Arabia has become in the oil world," Tornqvist told S&P Global Platts in an interview.

"The world's perception of high oil prices has gone away and the case for high oil prices is eroding. I never believed in it," he said.

Tornqvist said Gunvor avoided taking any major short-term trading positions in the immediate wake of the attacks but said supply disruptions did create some "opportunities."

"In our case, we didn't take any rash decisions. Our view was that the elevated prices we saw would not be sustained. It had no negative impact at all on our businesses, it created more volatility and created some opportunities here and there," he said.

LNG TRADING GROWTH

On Gunvor's overall earnings so far this year, Tornqvist said the trading house first-half results had been helped by a company-wide "overhaul" to cut costs across its business.

"We've had a very good year to date, one of the better performance we've recorded," Tornqvist said. "It's a combination of good trading conditions but most of all, Gunvor has adjusted its operations and is now performing well on a broad basis in the trading sphere."

Tornqvist said Gunvor has seen another jump in its LNG trading business growth this year, increasing its LNG shipping volumes by 40% over 2018.

Gunvor became the biggest independent LNG trader last year after delivering about 11 million mt, a 60% jump from 2017. Around two-thirds of Gunvor's volumes delivered were under medium- and long-term contracts.

"LNG is something we've been building for many years. Since last year the volumes ramped relatively quickly. We've increased our ship volume this year by another 40% and we are very active as a consequence in the shipping market in spot and long-term," he said.

THREAT FROM NOC TRADERS

Further out, Tornqvist said he believes Gunvor will face only a limited threat from more national oil companies starting up in-house trading units.

Saudi Aramco, the world's biggest oil exporter, has said it wants to become a top-three global oil trader, trading as much as 6 million b/d of crude and refined products as it expands its downstream reach in Asia. Abu Dhabi National Oil Company (ADNOC) is also setting up a new trading unit to handle its crude and refined products.

"The more trading arms, whether it's in the Middle East or elsewhere, does create competition but we're not afraid of competition. We have our way to do things and it's not easy for some of those [new trading units] to get it going. They feed all their systems, but once they want to do something outside it's not that easy," he said.

Gunvor opened a new natural gas trading desk in London last year, and it also delivered the first cargo under a 23-year contract with Russia's Yamal LNG.

--Robert Perkins, robert.perkins@spglobal.com

--Edited by Alisdair Bowles, alisdair.bowles@spglobal.com