“Bespoke.” The term has been around awhile, but in recent years it’s gained popularity as a way of conveying the idea of something made-to-order for a specific customer. In the world of fashion, a bespoke suit is a suit cut and sewn to the exact measurements of the buyer. Or in the everyday world of lunchtime options, a bespoke sandwich might combine any number of toppings and condiments.
With that example in mind, it might even be said that some of today’s biggest oil traders have created a kind of “Sandwich Shop at Sea”. When it comes to the blends they’ve made it their business to mix-and-match for the niche needs of their customers.
Why bespoke oil makes sense for traders and refineries
With the glut of crude and the stabilization of oil prices, big oil traders like Vitol Group, Trafigura Group, Glencore Plc and Gunvor Group looked for ways to gain a competitive edge in the oil marketplace. And they’ve found it in their ability to offer bespoke blends from Very Large Crude Carriers (VLCCs), especially those anchored off the coasts of Singapore and Malaysia—a region that provides a gateway to big energy markets like China and India, where the demand is strong and fast growing.
Nevyn Nah, a Singapore-based analyst at Energy Aspects Ltd., sums up the plusses of that tactic: “These floating vessels allow traders to sell cargoes in smaller parcels which can help when refineries are processing crude for the first time, or when local jetties cannot take in larger vessels. It also allows sellers to blend different grades to meet specific quality requirements.”
Vitol’s Malaysian Blend Crude, for instance, has the qualities of a high-sulphur medium gravity oil—a favorite of complex plants in Northeast Asia.
For refineries, there’s also an advantage from on economic standpoint. With those VLCCs and their 2-million-barrel capacities standing ready and nearby, various types of crude and blends are available without the wait and added expense of long-distance transit. For smaller and mid-sized refineries with constraints on their capacity or infrastructure, this is no small thing.
The use of blends
The reasons refineries want or need blends vary, but special blends are typically valued for their ability to:
- Improve pipeline capacity
- Improve the overall value of the crude
- Increase product yield
For traders, a viable alternative to contango trade
Back in 2015 and 2016, traders were able to thrive by taking advantage of the glut that led to a strong “contango” — i.e., when contracts for delivery at a later date trade higher than near-term prices. In that situation, storing crude bought on-the-cheap made the wait for later profits worth it. But these days that strategy has been called into question, due to the costs of leasing VLCCs and other expenses associated with storage, measured against the likelihood of potential gains.
With the amount of oil stored in tankers reaching a 2017 high of 111.9 million barrels, it’s no wonder that the move toward offering tailor-made cargoes from offshore “supermarkets” in key regions has gained a foothold among some of the biggest names in oil trading.