Oil major BP has clashed with rival Vitol in the once-languid West African crude market, buying up cargoes and taking a big derivative position that may have raised costs for European refiners.
New trading opportunities arose from August, when broker Sunrise started the first derivative for Nigeria’s four largest crude oil grades – Bonny Light, Forcados, Qua Iboe and Bonga. The derivatives, known as contracts for differences (CFDs), allow traders to bet on whether premiums of the four Nigerian grades versus the Brent benchmark will rise or fall.
BP quietly built a long position of up to 10 million barrels in the African CFDs contracts in August, betting the premium of the grades to Brent will rise in September. After quietly building its paper position in August, BP launched a flurry of bids on the Platts system in September for physical cargoes of Nigerian oil.
Against BP in the paper market were six trading desks, including trading giant Vitol, which took the opposite side of the bet and went short CFDs, betting that African grades’ premiums to Brent would fall, according to trading sources.
BP bid for a total of 22 Nigerian cargoes loading between Sept 3-12, a previously unseen volume in the West African crude market, where a whole month can sometimes go without a single public bid or offer in the Platts window. The rise in premiums in the physical market made BP a big winner on its long position on the CFDs trade, while Vitol was a loser, according to traders.
In reaction, Vitol spent over $500 million to buy seven cargoes outside the Platts system from oil majors Total and Shell, paying premiums above $1.70 per barrel, according to three traders familiar with the developments.
The trading house then re-sold the cargoes on the Platts system to BP at premiums ranging between $1.55-$1.75 per barrel, effectively accepting a loss on the physical trade but limiting its losses on the CFD side.