Vitol Group, the Swiss oil trader that had revenue of almost $300 billion last year, said declining profits at U.S. and European refineries will spur more transcontinental fuel shipments.
Processing margins will stay weak at plants in Europe, deterring potential buyers as major oil companies continue to exit the business, Vitol Chief Executive Officer Ian Taylor said. Along with the closing of unprofitable plants on the U.S. East Coast, consumers will increasingly need to buy fuels such as diesel from further afield, creating trading opportunities.
“As East Coast refineries close, European refineries close, the product import arbitrage openings will probably lengthen a little bit,” Taylor said in an interview at the company’s London office. “We’ll probably see a little more shipping used.”
Petroplus Holdings AG, Europe’s largest independent refiner, filed for insolvency this year amid tumbling profits as companies built new facilities in Asia and the Middle East. Sunoco Inc. and ConocoPhillips have shut two plants in Pennsylvania and plan to idle a third that together could process more than 700,000 barrels a day. Hovensa LLC closed a plant in the U.S. Virgin Islands that was the largest offshore shipper to the East Coast.
At least seven refineries are up for sale in Europe, including four of Petroplus’s five plants.
‘Difficult to be Bullish’
“I can’t see many buyers,” Taylor said in the March 21 interview. “It is very difficult to be bullish on European refining. Demand in Europe continues to be flat or declining, costs for refiners continue to be relatively high.”
Refining margins fell 49 percent to $1.48 a barrel in northwest Europe last month from $3.01 in January and were negative early this month because of crude costs, the Paris- based International Energy Agency said in a March 14 report.
The closures will encourage arbitrage shipments from other regions, Taylor said. The construction of large, sophisticated refineries in India, China and the Middle East has made some Western plants less competitive at a time when demand has declined in industrialized nations.
Vitol itself made 5,460 ship voyages in 2011 and has more than 200 ships on the sea at any one time carrying crude and oil products around the world, according to the company’s 2012 annual report.
Vitol boosted its revenue 44 percent last year to $297 billion from $206 billion in 2010, the annual report showed without disclosing net income. Crude and oil-derived fuels accounted for $229 billion of the total.
‘Committed to Trading’
Trading more than 5 million barrels of crude and oil products every day makes Vitol one of the world’s biggest independent oil traders, competing with peers such as Trafigura Beheer BV, Gunvor Group Ltd. and Mercuria Energy Trading SA and listed companies such as Glencore International Plc (GLEN), BP Plc and Royal Dutch Shell Plc.
The company, founded in 1966 has major offices in Geneva and London, is “committed to the trading business for the long term,” Taylor said. “We will be trading oil hopefully for the next 45 years” as integrated oil companies shift their focus to upstream operations and away from trading and refining.
Vitol has no plans for an initial public offering and out of its 2,810 employees, 360 have shares in the company.
Competitor Glencore (GLEN), based in Baar, Switzerland, sold $10 billion of stock in an initial public offering in May. Glencore’s revenue from energy products was $117 billion last year, up 31 percent, out of a companywide total of $186 billion in 2010, according to a March 5 earnings statement. Glencore, seeking to buy Xstrata Plc, the world’s largest exporter of thermal coal, is more heavily involved in mining and agriculture than Vitol, while the latter focuses on oil trading.
“We have to be in it today, tomorrow and the next day, and maybe we’re willing to take a little more credit risk, for example, maybe we’re willing to be a bit more flexible in certain payment structures compared to an international oil company,” Taylor said. “The oil majors continue to selectively exit the downstream and this gives us opportunities.”
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