Shell hoovers up Dubai supplies

Shell has purchased an unprecedented 7.2 million barrels or 240,000 bpd of Dubai crude oil via partials so far. (Getty Images)

European giant Shell has purchased all available November-loading benchmark Dubai crude cargoes after an unprecedented buying spree on the partials market this month, traders and industry sources said on Friday.

On Thursday, US trader Phibro, declared physical delivery of a Dubai cargo to Shell after selling it 19 partial 25,000-barrel lots - the fourth such declaration.

The major was thought to have purchased a fifth cargo on the spot market, although this could not be confirmed. The Dubai loading programme rarely counts more than four, sometimes five cargoes a month, with Phibro the biggest supplier.

Traders said Shell is the first company in over three years to openly absorb an entire month's slate of Dubai crude cargoes, and many had thought the broadening of the Middle East benchmark had largely put an end to trading plays.

As Dubai oil production dwindled to below 100,000 barrels per day (bpd), pricing agency Platts moved to allow sellers of Dubai partials - effectively the benchmark for most Middle East crude sold to Asia - to deliver alternative grades instead.

In 2001 it allowed for delivery of Oman, and last year it broadened the benchmark further to allow delivery of Upper Zakum, although in practice this rarely occurs because most refiners say those types of crude are more valuable than Dubai.

This month, however, the value of those grades has fallen below Dubai amid persistent buying interest from Shell, prompting sellers to nominate 8 cargoes of Oman and two of Upper Zakum.

Shell has purchased an unprecedented 7.2 million barrels or 240,000 bpd of Dubai crude oil via partials so far, Platts data shows.

Taking into account the three grades, Shell appears to have bought about 15 of the 50 or so cargoes that load each month, although many refiners in the region have objected that the persistent buying interest has hurt their margins.

Other traders have pointed out that November was always destined to be an exceptionally strong month for Middle East crude due to planned maintenance at three key oilfields in Abu Dhabi, although they say that does not fully explain Dubai's price premium to the other lower-sulphur crudes.

The Abu Dhabi National Oil Company (ADNOC) said on Sunday that its oil output would be cut by 600,000 bpd over the course of November, and told refiners this week to expect half or zero their usual supply of Um Shaif, Upper Zakum and Lower Zakum.

But some traders say Shell may have excess supplies.

The refiner, which has a refining system of 926,000 bpd East of Suez, is offering to sell Murban crude through a broker at 55 cents to the ADNOC official selling price on Friday, down from a trade at plus $1.30 a barrel a week ago, traders said.

"It's crazy where that offer is compared to last week, especially considering that the market is tight," a trader said.

Earlier this week Shell also offered an Upper Zakum cargo into a tender by refiner Taiwan CPC, which traders took as the first indication that the major may have gotten more crude than it bargained for after a month of unabated buying. - Reuters

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