Platts: Shell takes September Singapore jet buying spree to 14 cargoes

Singapore (Platts)–21Sep2006

Shell, one of the largest suppliers of jet fuel in Asia, took its cargo
buying this month to at least 14 shipments of 100,000 barrels each, leaving
observers struggling to work out where the oil was headed.

     The major, which was said by traders to have also built up a long
September jet swaps position, bought a further two cargoes Thursday, one from
Morgan Stanley and another from BP.

     “Shell has huge demand (this month), but I don’t know where it’s coming
from,” said one Asia-based trader.

     The oil major, which is a regular supplier into key import countries such
as Australia and Hong Kong, was thought by some traders to be selling most of
the jet, all loading in Singapore, into China and India.

     Shell, which would not comment directly on where the 14 cargoes were
headed, is not expected to take the cargoes out of the region as standard
arbitrage routes, such as to the US West coast, are closed, partly as a result
of Shell’s strong buying interest in the key Asia trading hub.

     “We’ve had a lot of people come to us wanting to buy oil,” a trader at
Shell said Thursday. After agreeing to sell to those people, “we’ve needed to
pick up the jet fuel,” he added.

     “We’re not going to drink it, we’re giving to people who are going to
consume it,” he said.

     Shell was considered by traders to have built up a large long position in
the Asia jet swaps market. Shell bought September jet paper and September
regrade swaps on several days earlier this month from a broad range of
counterparties including BP, Glencore, Vitol, Morgan Stanley, ABN, Deutsche
Bank, Chinaoil and Hess.
     FUEL LIKELY HEADED TO INDIA, CHINA

     The exact size of Shell’s paper position is difficult to calculate though
it would be used to offset its buying in the physical market, several traders
said. “Shell is probably taking a hit on the physical at these prices,” said
one trader.

     “Everyone with a cargo to sell would like these numbers (Shell are
paying),” said a second trader.

     Shell bought its 14 shipments this month from BP, Morgan Stanley, Vitol,
SPC, Glencore, Chevron at values ranging from MOPS minus 40 cents/barrel to
MOPS plus 50 cents/barrel.

     Shell said it bought swaps to manage risk and pick up cheap looking
deals.

     “We buy swaps to hedge and if we see undervalued paper we’ll buy it,” the
Shell trader said.

     Shell is likely to sell many of the jet cargoes into China due to the
soaring economy in the country and increasing demand from major importer China
Aviation Oil, said market observers.

     Shell was thought to be selling cargoes to the winners of CAO’s buy
tenders for September and October delivery.

     CAO bought 540,000 mt of jet for September delivery during this month and
August, a monthly record for the importer. In addition, CAO has bought 590,000
mt of jet fuel for October and November delivery from nine suppliers. The
winners of the CAO tenders were said to include several Chinese traders.

     Shell is also expected to take some of the jet to India after it was said
to have won a tender to sell a 40,000 mt cargo of kerosene to Indian Oil Corp.
     The cargo was for delivery into Paradip/Haldia, India during October
8-12. Shell declined to comment directly on the IOC or CAO tenders.

–Daniel Booth, [email protected]

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