OMAN - The Spot Market

APS Review Oil Market Trends, Feb 11, 2002

The Oman spot market is backed by Shell International Trading Co. (Sitco) which usually buys the unsold cargoes. Although this market has lost the good liquidity it had in recent years, the number of spot Oman deals done has risen.

Participants in this market are some trading companies, including Japanese, as well as most of the equity producers in the sultanate who sell an important part of their crude on the spot market. In the lead is Shell, the main equity producer, followed by TotalFinaElf.

Spot trade is also backed by MPG's monthly pricing formula, which is sensitive to market forces. Most spot buying is destined for the Far East. The number of spot deals has risen. Petroleum Argus on Jan. 7 said Oman cargoes for loading in the three months from November to January 2002 changed hands 88 times, adding: "Total spot trades in all other non-Iraqi Middle East Gulf crudes numbered only 12 more".

Argus noted that Oman's pre-eminence among spot-traded Gulf crudes has been cemented by recent changes to the methodology of pricing agency Platts. In its Dubai assessments, Platts now includes Oman cargoes delivered into deals priced against Dubai. This was motivated by the dwindling number of trades in physical Dubai, which Argus said now totalled "just a handful a month". In addition, low liquidity had made the Dubai marker "susceptible to manipulation". Platts hopes that adding 30 Oman cargoes spot traded each month will greatly enhance the liquidity of Dubai. But, as Argus noted on Jan. 7, "many Asia-Pacific refiners see this as only a stopgap measure before Oman, either alone or as part of a basket of Mideast Gulf crudes, is adopted as the new regional benchmark".

The MPG has been looking at the idea of making Oman a marker for all Gulf crudes since mid-2001. The MPG ordered a study by London-based Petroleum Economics Ltd (PEL), which was to be completed by end-2001. This was to review Oman's retroactive pricing formula and study the potential for spot trading in the crude.

There is also a paper market on Oman, which has greatly expanded in recent months. Oman inter-month swaps, Oman/Dubai swaps and, in particular MPG swaps, are all frequently traded. MPG swaps are based on traders' forecasts of the differential of Oman's official selling price to Dubai.

The main spot buyer of Oman crude is the state-owned trading company China United Petrochemical Corp. (Unipec), which usually purchases from 3.5m and 6m barrels per month. Other spot buyers of Oman have included ExxonMobil, Caltex, Cosmo Oil of Japan, CPC of Taiwan and companies from South Korea and China. Spot buyers have also included US west coast refiners like Tosco and Ashland, plus some Mediterranean refiners.