Oman’s International Buying Spree Spans Three Continents

Oman’s International Buying Spree Spans Three Continents

Oman, the largest oil producer in the Middle East outside of OPEC, plans to buy, lease or build fuel-storage tanks in East Africa to boost sales on the continent and open a U.S. office to trade refined products and Latin American crude.

Oman Trading International Ltd. intends to invest less than $50 million in facilities to store fuel in Mozambique, Tanzania or Kenya to help supply markets in Africa’s landlocked interior, Chief Executive Officer Talal Al Awfi said in an interview. He declined to specify the target markets. His company, a joint venture with Vitol Group, the world’s largest independent energy trader, plans to open a U.S. office in the first half of 2016, Al Awfi said in his Dubai office on Sunday.

Infrastructure investments in Africa and a physical presence in the U.S. are vital for the company to extend its reach beyond traditional markets in Asia, Al Awfi said. Oman sells most of its oil to China, where Middle Eastern crude producers face growing competition from suppliers outside the Organization of Petroleum Exporting Countries. Russia surpassed Saudi Arabia to become China’s top supplier in May, according to data from the Beijing-based General Administration of Customs.

“We’ve seen fundamental changes in the market,” Al Awfi said. “Asia as a market is now enjoying a period where there are options with all the growth in oil production.”

Brent for August settlement gained 1.3% to $62.79 a barrel on the ICE Futures Europe exchange at 12:56 p.m. in London. Oil fell 48% last year as growing supply led to a glut in the market.

Crude may climb to $80 a barrel by 2018 on improving demand in Asia. even with increased supply from the Middle East, Russia and Latin America, Al Awfi said. Prices of $100 by 2020 would be “realistic,” he said.

An office in the U.S. will give Oman Trading a base to buy and sell Latin American crude, he said. Exports from Colombia and Venezuela, among other regional suppliers, have been pushed out of the U.S. market by increased local production, and many of those barrels are now flowing to Asia, where Middle Eastern crudes were traditionally dominant, he said.

In Singapore, the company hired Nick Kay, a former trader at Phibro Ltd., to expand its crude oil business, Al Awfi said. Kay will be the company’s first crude trader based in the Singapore office, which has so far dealt in petrochemical products.

Oman Trading, based in Dubai in the United Arab Emirates, aims to boost the volume of crude oil, refined products and petrochemicals it buys and sells to about 20 million metric tons next year, Al Awfi said. Volume this year will probably fall from 18 million tons handled in 2013 as volatility and the drop in crude prices last year hurt trading, he said.

“Trading margins are being squeezed all over,” Al Awfi said.

Oman Trading is seeking storage capacity in Africa for less than 100,000 cubic meters (26 million gallons) of refined products, and it plans to complete a transaction before the end of the year, Al Awfi said. The company also sees an opportunity to expand trading in Iraq, where it supplies gasoline, he said.

Investment in Africa could rise to about $100 million if the company expands further into fuel distribution or buys more assets in the region, Al Awfi said.

Oman pumped 944,000 barrels of oil a day in 2014, according to the country’s central bank. OPEC’s output target is 30 million barrels a day.

The Sultanate of Oman, which owns 70% of Oman Trading, plans to buy the 30% stake in the company held by Vitol, people familiar with the situation said earlier this month.

The government had always intended to take full control of Oman Trading since founding the business in 2006, Al Awfi said. He wasn’t able to comment further on the planned ownership change because Oman Trading’s management isn’t directly involved, he said.

Oman is a founding shareholder of the Dubai Mercantile Exchange, a futures market set up in 2007 to trade Omani crude. CME Group Inc. owns 50% of the exchange, and Oman and Dubai hold smaller stakes.

Source: Bloomberg


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