Royal Dutch Shell’s top oil trader has launched a staunch defence against accusations that the company’s activity in the North Sea crude market had skewed the benchmark that underpins global oil prices.
Shell is alleged to have traded aggressively in the region last year, contributing to heavy losses among rivals, according to industry sources.
Traders said Shell’s large positions in North Sea crude at times during 2016 ran contrary to clear signs of oversupply in the market, with the buying spree seen potentially pushing up prices in the region.
“Unfortunately this is something that comes with the territory when you are a large company with a large share of the action in a market, and you happen to be a household name and a familiar brand, you are automatically a target,” Mike Muller, vice-president of crude oil trading and supply at Shell International Trading & Shipping told the FT Commodities Global Summit in Lausanne.
Mr Muller said Shell’s actions in the North Sea market, where it controls the largest share of production that underpins the Brent contract, should not be viewed in isolation as its trading arm is a global operation.
“Sometimes if you’re expressing a view on the market . . . this might be translated by some as Shell pushing the market up,” said Mr Muller, referring to a strategy of buying up Nigerian cargoes — which are of a similar quality to Brent — to supply European refineries as the oil market tightens.
He added that it was ‘’incumbent’’ on Shell to use the information it gleans from its international operations to devise trading strategies. “It’s my job to make sure they are executed in a manner that is defensible,” he said.
The comments by Mr Muller mark a rare response from a senior trader to accusations that arise in the oil markets when companies build large positions by buying more cargoes in a month than normal.
Mr Muller was speaking on a panel alongside other senior oil traders active in the North Sea. Ben Luckock from trading firm Trafigura said he had some sympathy with Shell’s position.
There has been increased regulatory scrutiny around benchmarks in financial markets and commodities in recent years given their potential to influence prices that underpin billions of dollars of trade and derivative contracts.
“The benchmarks have always been traded relatively aggressively by large crude market participants,” Mr Luckock said. ”They’re a big player in the market, so are a number of people on this stage, and people have to trade this aggressively to ensure that you are coming towards a fair market value.”
Shell trades as much as 8m barrels of crude oil and refined products. It supplies its global network of refineries both with the crude the company itself produces as well as buying and selling barrels from third parties.
Its large-scale trading division, which competes with other oil majors such as BP, Total and ENI as well large independent traders like Vitol, Trafigura and Glencore, will also take speculative positions in the hope of calling price moves correctly.
The Brent benchmark consists of physical supplies as well as forward futures and options contracts. Platts, which assesses physical prices in the North Sea, said it does not comment on activities of any individual company that participates in its pricing processes.
ICE, which operates the exchange where the Brent futures contract trades, declined to comment.
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