Shell Shakes Up Oil Trading World With Brash Buying Sprees

The giant tankers anchored along the Scottish coast in the Firth of Forth weren’t going anywhere. They were just providing floating storage because there was no demand for their cargo, North Sea crude oil.
But the flickering computer screens in the world’s trading rooms told a different story. Prices through the month of April were jumping, showing someone was buying, stunning traders and leaving some with heavy losses. That wasn’t the only bizarre gyration last year in the market for Brent, whose price determines the cost of just about every petroleum-based product, from jet fuel to plastic spoons. Such unusual moves damaged confidence so much that some traders retreated from the market.
The buyer on virtually all those occasions was Royal Dutch Shell Plc, according to interviews with two dozen industry executives and data compiled by Bloomberg. Last year, Shell dominated Brent trading to such an extent that it moved the market even against the fundamentals of global supply and demand, according to the interviews with the market participants, who asked not to be named describing the activities of a rival. Shell said in a statement there was no basis for competitors to criticize its behavior.

Better known for its oil fields and refineries, Shell is also the world’s largest oil trader, handling contracts that exceed the needs of its core business and enabling it to make speculative bets in dozens of markets. With Wall Street-like operations from London to Singapore, Shell trades over 12 million barrels per day of physical crude and refined products -- more than a 10th of the world’s oil consumption -- and "several multiples of that as derivatives," according to a Shell presentation.
While none of those interviewed said Shell did anything illegal, they said the company violated the unspoken rules governing the market, which is lightly regulated. Executives of several trading rivals, including Vitol Group BV, the world’s top independent oil merchant, raised objections with counterparts at Shell last year, according to market participants.
"There are clearly defined rules and regulations in the U.K. prohibiting the manipulation of physical commodity markets such as the Brent crude market," Shell said in its statement. The company said it complies with all the market’s rules and regulations.

The Anglo-Dutch giant made its highest profile move in April, when it secured at least 16 cargoes -- each of about 600,000 barrels, or the standard size of a North Sea tanker -- of Forties, equivalent to nearly 70 percent of the total cargoes available, according to data compiled by Bloomberg. That position gave it a strong influence in the daily price of the BFOE basket and, by extension, of the Brent universe of physical and financial contracts.
As Shell bought the crude, rivals scrambled to cover their own positions. Despite a glut in the global oil market, the price of Brent rose in April as if there were a shortage.

While rivals complained to Shell, the oil giant saw its trading patterns as business-as-usual. It was simply securing enough Forties crude to supply its own refineries and clients in Asia, according to people familiar with the company’s strategy. Shell sold in Asia more than 35 million barrels of North Sea crude last year -- up from around 6 million barrels in 2015 -- according to ship-tracking and fixture data compiled by Bloomberg.

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