Inside Financial Markets



SINGAPORE/MELBOURNE, Feb 26 (Reuters) – Australia is turning into a playground for global oil traders, who are snapping up storage tanks and terminals as they bet on it to become Asia’s top importer of oil products as demand rises and old, inefficient refineries close.

Australia, where no major oil company dominates the local market, is a rare importer in a region saturated with surplus refining capacity and an oversupply of oil products.

Top world oil trader Vitol VITOLV.UL last week bought an Australian refinery and 870 petrol stations from oil major Royal Dutch Shell  RDSa.L for $2.6 billion, its biggest acquisition to date. (Full Story)

“All the oil majors are capital-constrained today. They are under huge pressure from all their shareholders to put more and more capital upstream, which is where they probably are making their maximum returns,” Vitol Chief Executive Ian Taylor said last week.

“Whereas ourselves, we are wedded to the downstream. That’s our business. That’s where our expertise is,” he added.

Vitol’s foray happened less than a year after rival Trafigura’s TRAFG.UL Puma subsidiary bought 270 retail stations in Australia, 16 fuel depots and a seaborne terminal in Brisbane.

“Puma had been monitoring the Australian market for many months,” Trafigura said in its annual report at the end of 2013.



Free markets and proximity to major fuel exporters such as South Korea make Australia an extremely attractive place for traders to explore the growing gap between supply and demand. Its fuel prices are only lightly regulated, in contrast with markets in China and other Asia countries.

Australia is already Asia’s top importer of diesel and is poised to overtake Indonesia as the region’s biggest overall importer of oil products within five years, based on expected rises in jet fuel and gasoline imports.

“The opportunities are immense. Australia has a thriving natural resources sector. It has the world’s third-highest fuel consumption and second-highest car ownership rate per capita,” Trafigura said.

“Puma Energy knows what it takes to get fuel to remote, rural regions”, in a country with over 300 airports and 900,000 km of roads, it said.

Against a backdrop of rising demand, oil majors have closed refineries, most of which are decades old, and are reluctant to invest in new plants because of high labour and financing costs due to a strong Australian dollar.

“Traders anticipate Australia will be soon be a major short on products. This is exactly an environment in which traders thrive,” a source with a top trading house said.

Australian refineries owned by Shell, BP  BP.L, Exxon Mobil  XOM.N and Caltex  CTX.AX, have reported mostly losses for years as tighter fuel quality standards and big new plants elsewhere in Asia have made them uncompetitive.

Vitol plans to upgrade the 120,000 barrel-per-day Geelong refinery in 2015-2016, Taylor said. (Full Story) Geelong is one of only three refineries in the southern hemisphere that produces aviation gasoline, which could be re-exported, he said.



But the emphasis will be on imports, traders say.

Trafigura’s Puma is building a new terminal at Mackay in Northeast Australia, to support its businesses. It is due to be operational in early 2014.

Expanding Australia’s import terminals will be vital at a time of massive refining capacity additions in China and India, against a backdrop of slowing growth in demand for refined oil products in Asia.

China and India are planning to boost refining capacity by 2.5 million bpd this year and next. (Full Story)

Those additions could create a products glut in the region, which would make imports into Australia even more attractive.

The growing regional surplus will inevitably put further pressure on the large refining players that remain in Australia while giving further opportunities to large fuel importers.

Sanie Khan

Sanie Khan holds a deep knowledge of the financial markets in Pakistan. Based in Karachi, he has over 20 years of hands-on management experience in financial technologies and managing operations in the financial sector. He was the General Manager at the Pakistan Stock Exchange (PSX) for 17 years. He along-with senior members of Exchange

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)