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You're reading: Vitol, Glencore dominate Russian oil trading

LONDON - Swiss trading houses Vitol and Glencore have become the largest players in the Russian oil export market, dominating supplies from the world's biggest producer after a switch in Kremlin policy opened up the trade.

Between them, the world’s two biggest oil traders will trade
over 4 million tonnes of Russian oil worth over $3.2 billion in
October, or over a third of the volumes that Russia will sell to
Europe via its Baltic and Black Sea ports, according to Reuters

That marks a departure from how oil was sold only a few
years ago, when Kremlin-controlled firms such as Rosneft
or Gazprom Neft sold their oil mainly via Gunvor, a
trading house co-owned by Russian businessman Gennady Timchenko.

“Everywhere you saw Gunvor before, Glencore is now written
in capital letters. Vitol has also grown scarily big,” a veteran
Russian trader said. Vitol and Glencore declined to comment.

The oil industry, which has for years watched the Kremlin
increase control over Russia‘s natural resources, is still
divided over whether Gunvor surrendered its position
deliberately or the change came after orders of some kind from
the Kremlin.

Russian opposition figures have for years suggested Gunvor’s
success was due to close ties between Timchenko and Putin.

Both men denied that. Putin said he had never helped
Timchenko, and Gunvor, which had revenues of more than $80
billion last year, said its success was due to competitive
prices and the experience of its traders.

However, Gunvor has been left with almost no Russian crude
to sell after Rosneft, which produces as much oil as Nigeria,
awarded its tender to Vitol, Glencore and Shell.

Gunvor says it has deliberately cut exposure to expensive
Russian oil and although it took part in the latest tender to
buy crude for 6 months it did not offer the highest prices.


Rosneft says it awards tenders only based on the best offers
for its crude. Vitol and Glencore have indeed offered the
highest prices, outbidding rivals at the latest Rosneft tender.

The big difference, however, was that Glencore was allowed
to bid at such tenders for the first time, sources say.

“Glencore had been as banned a word at Rosneft as the dollar
was in the Soviet Union,” said a Rosneft insider.

Rosneft declined to comment on changes to its tender
practices, which happened soon after Sechin, previously deputy
prime minister, took over as Rosneft’s chief executive.

Several insiders said Glencore’s relatively modest positions
in Russian oil up until this year were the result of rocky
relations between Sechin and Russian aluminium tycoon Oleg

Glencore has a minority stake in Deripaska’s aluminium giant
RUSAL. Coincidentally or not, Rosneft started treating Glencore
differently as Gunvor’s dominance shrank.

“Glencore was the biggest absentee at Rosneft’s tenders and
it was clearly an anomaly,” said a source familiar with the
developments. Glencore contacted Rosneft a number of times
seeking to overturn the practice and be included in tenders.

A meeting earlier this year between Glencore and the Rosneft
board, including Sechin, has finally won the trader the right to
participate in tenders as it said it could pay top dollar.

“As soon as Glencore got invited, they started winning as
they offered some of the most competitive prices,” he said.


Apart from Rosneft’s barrels, Glencore markets in Russia cargoes from mid-sized firm Russneft and small producers. Vitol
sells cargoes from Kazakhstan and mid-sized producers.

Unlike Glencore, Vitol was a regular at Rosneft’s tender but
the latest results surprised even the industry’s veterans.

“I cannot remember anyone being so dominant in my 20 years
plus on this market”, said a veteran Russian oil trader.

Thanks to the Rosneft tender, Vitol has acquired 40 percent
of Russian exports from the Black Sea in October and that will
likely last at least until March. Russian oil is the main sour
crude grade in the Mediterranean market after the ousting of
Iranian barrels due to Western sanctions.

Details of the shipments point to an even bigger dominance
by Vitol as many Russian producers’ cargoes go straight to their
European refineries. That limits the amount that can go to the
spot market, thus increasing Vitol’s power to dictate prices.

“There is nowhere to run. If you need Urals (oil) in the Med
you have only one number to dial,” said another trader.

Vitol is known in the industry for taking big bets such as
its heavy involvement in the Libyan revolution last year when it
sent tankers to the rebels in the middle of a civil war.

Prior to winning the Rosneft tender, Vitol’s long-time CEO
Ian Taylor, a Briton, met Sechin, industry sources said.

“I cannot think of anyone else who would dare to take such a
dominant position,” a veteran participant in Rosneft’s tender
said. “You can win but it can also backfire spectacularly if the
market turns against you.”

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