From: Berhane Habtemariam (Berhane.Habtemariam@gmx.de)
Date: Sat Sep 26 2009 - 06:13:03 EDT
The dark secrets of the trillion-dollar oil trade
Tankers full of oil its owners don't want to sell. Shady deals with brutal
regimes. Vast profits. Pollution scandals. Cahal Milmo investigates a very
murky business
Saturday, 26 September 2009
With a combined capacity for 313,000 tonnes of oil, the Delta Ios and the NS
Burgas supertankers were launched two months ago to criss-cross the globe in
search of trade. Instead, the vast vessels were to be found yesterday lying
idle off the coast of Singapore after their owners were paid by two of the
world's richest and most secretive oil companies to turn them into floating
petrochemical warehouses.
At first glance, the decision by Trafigura Group and Vitol Holding BV to
charter the newly built ships at an estimated cost of £47,000 a day to do
nothing for up to four months in South-east Asia while laden with cargos of
diesel worth at least £77m per vessel makes little economic sense.
When this is combined with the fact that the Delta Ios and the NS Burgas are
just two ships in an enormous fleet of tankers which are currently being
paid about £80m a month by independent oil traders like Trafigura and Vitol,
as well as giants such as Shell, to stay anchored around the globe with
anything between 50 and 150 million barrels of redundant crude on board, it
seem that the ruthless barons of black gold must be losing money as fast as
they can make it.
Far from it. The phenomenon of "floating storage", which has been brought
about by a huge over-supply of global tanker capacity and unusual market
conditions, is just one example of the multitude of ways in which a small
group of private, mostly Swiss-based companies have become adept at turning
vast profits from the closed and often murky world of independent oil
trading. A glut of oil caused by the recession means that crude available
for immediate purchase is currently cheaper than that bought on longer-term
or "future" contracts – a practice known as "contango". The result is that
independent traders have been rushing to buy the cheaper "spot" oil and
storing it wherever they can – namely in under-employed tanker fleets – in
anticipation of a sharp rise in price as the global economy begins to
recover. The resulting profit can be anything between 15 and 20 per cent –
tens of millions of dollars – even after the cost of hiring a tanker is
deducted.
It is a situation which prompted one senior oil company executive to declare
that the spring and summer of 2009 represented "blessed times for trading".
Another oil trader told The Independent: "Contango has been a real boon. The
independents have become very adept at buying up tanker capacity as cheaply
as possible, sitting on the stock and selling it on via arbitrage. They've
been as slick as you like."
The deals are part of a world in which discretion and an ability to keep out
of the public eye have long been treasured. While the oil majors such as
ExxonMobil, Shell and BP operate as global corporations, the independents or
"jobbers" have thrived in the grey zone of fast trading-room deals and
personal contacts that allow access to lucrative oil reserves.
But increasingly the activities of the "big four" independent traders –
Trafigura, Vitol, Russian-owned Gunvor (which has consistently denied
reports that it is linked to the Russian Prime Minister, Vladimir Putin) and
the hugely successful Glencore – are coming under scrutiny. Questions are
being asked about their role in uniting the oil wealth of some of the
world's more unsavoury regimes with the open market.
Trafigura, which until August 2006 was barely known outside the oil trade –
despite growing to become one of the world's biggest companies with a
turnover of $73bn (£46bn) since it was founded 16 years ago – last week
found itself making headlines around the world when it agreed to pay about
£30m to thousands of residents of the Ivory Coast port of Abidjan who fell
ill after toxic oil waste from a ship chartered by the company was dumped by
a sub-contractor near the west African city.
The settlement of the claim brought on behalf of 31,000 Ivorians at the High
Court in London after tonnes of foul-smelling sludge were fly-tipped in
August 2006 was said by Trafigura to vindicate its position that there was
no link between the waste and people who died or suffered serious illnesses.
But the Abidjan pollution disaster shone a light into the nature of the way
these multibillion-pound "jobbers" of the oil trade make their money. In the
case of Trafigura, the events of August 2006 were just part of a deal
conducted across three continents in which a cheap, low-quality form of oil
known as coker gasoline bought from a Mexican refinery was further refined
in Europe, and the subsequent fuel was sold at a profit of about $7m per
cargo.
Oil industry insiders have told The Independent that coker gasoline is just
one of a myriad of methods used by independent traders to turn a profit,
ranging from "paper" deals struck in the City of London's trading floors, to
floating storage, to what is known as "physical trading" – transporting
hundreds of consignments of different grades of oil on chartered tankers
looking for the best price from dozens of offices across the globe.
Executives, who are frequently equity partners in the companies, speak of
constant shuttling around the world to close deals and negotiate prices.
By any standards, it is a huge and profitable industry. From a situation 20
years ago where the "majors" dominated the international trade, independents
now account for about 15 per cent of world's $2 trillion oil industry.
Glencore, founded in 1974 by the controversial trader Marc Rich – who was
indicted for tax evasion and later pardoned by President Bill Clinton – is
estimated to supply 3 per cent of the world's daily oil consumption. The
company is no longer involved with Mr Rich.
Between them, the "big four" had turnovers last year of about $415bn –
equivalent to the GDP of Austria. Because the companies are privately owned,
comprehensive profit figures are hard to come by, but Glencore announced a
profit of $4.75bn for 2008. Trafigura made $440m last year.
In an industry which deals with a commodity for which many countries have
gone to war, insiders say it is inevitable that traders will find themselves
dealing with authoritarian oil-rich regimes and dabbling in controversial
schemes. On at least one occasion, three of the big four – Glencore,
Trafigura and Vitol – have been found to have crossed the line between
incentives and kickbacks through their involvement in the United Nations'
oil-for-food scheme to help Saddam Hussein's Iraq buy humanitarian supplies.
In the UN's Volcker report, all three companies were cited for paying
surcharges demanded by Saddam's regime to win oil supply contracts. In 2007,
Vitol pleaded guilty in America to paying $13m in surcharges, and the Swiss
arm of Trafigura forfeited $20m. Both companies insisted that the deals had
been handled in good faith via third parties. Glencore, which was cited for
paying $6.6m in surcharges, denied any wrongdoing.
Glencore was also named in a 2005 High Court judgment as one of the
companies which handled shipments of oil sold by the state-owned oil company
of Congo-Brazzaville in central Africa. It was subsequently shown that cash
derived from the shipments was used by the son of the country's President to
pay credit card bills for shopping sprees in Paris. There was no suggestion
that Glencore acted improperly.
All of the "big four" point out that they operate in accordance with
international law and the Organisation for Economic Co-operation and
Development's guidelines on business conduct. But campaigners complain that
a lack of transparency in the industry means that proper scrutiny of the
oil-rich governments in Africa and the middlemen they deal with is
impossible.
Gavin Hayman, director of campaigns for Global Witness, said: "These
companies play a major role in selling Africa's oil and their operations are
notoriously opaque. It would be legitimate to ask: 'How do they get these
contracts, do they sell the oil for its proper price, and do they send the
money back to the correct place?'
"This lack of transparency creates a big risk that corrupt officials can
siphon off some of the profits and deprive ordinary citizens of their
rightful benefit from natural resource wealth."
<http://www.independent.co.uk/news/world/africa/the-dark-secrets-of-the-tril
liondollar-oil-trade-1793503.html?action=Popup> Vessels moored near
Singapore. It is now more profitable to use them for storing than
transporting oil
SINOPIX / REX
Vessels moored near Singapore. It is now more profitable to use them for
storing than transporting oil
