Bloomberg: Asian Oil Traders Reject Terms of Shell’s 2007 Oman Crude Offer

By Christian Schmollinger

Oct. 19 (Bloomberg) — Asian buyers have rejected Royal Dutch Shell Plc’s offer to sell Oman oil cargoes in 2007 because of terms that allow the company to buy back cargoes, stripping customers of supplies and potential profit.

Hyundai Oilbank Ltd., South Korea’s fourth-largest refiner, has rejected Shell’s terms, an official said. Four traders surveyed by Bloomberg said they knew of no company that had accepted Shell’s terms, which included an option to buy back cargoes at a premium of 6 cents over the official selling price 45 days before the loading date.

Buyers were last week offered the cargoes in one-year contracts at 4 cents over the official price, set monthly by Oman’s Ministry of Oil and Gas. Shell produces Oman crude through its 34 percent stake in Petroleum Development Oman. About 71 percent of Oman’s output, a benchmark for buyers of Persian Gulf oil, is shipped to Japan, South Korea and China.

“Anytime there is a chance for the term buyer to show a profit, Shell is saying they will deprive them of that,” said Y.H. Hwang, a crude oil trader with SK Corp., South Korea’s largest refiner, in Seoul. Hwang declined to say whether his company had turned down Shell’s offer.

Shell’s right to buy back cargoes would allow it to profit from gains of Oman oil in relation to its official selling price.

Oman has traded in the spot market at a discount to its official selling price for most of 2006. The discount fell to as low as 37 cents on Sept. 29 after reaching a premium of 15 cents reached on Aug. 15, according to Bloomberg data.

Oman’s output has been 664,000 barrels a day in 2006, down 5 percent from last year.

Dubai Futures

Shell may have less Oman oil to sell to Asian buyers because of a plan to deliver the grade against a new sour crude futures contract to be offered by the Dubai Mercantile Exchange, said S.H. Ahn, a trader with Hyundai Oilbank in Seoul.

Holders of the futures would take physical delivery of Oman crude if they hold contracts equal to 200,000 barrels, under Dubai Mercantile’s plan. The contract is scheduled to start trading by the end of the year.

Julie Tan, a spokeswoman for Shell in Singapore, said she couldn’t comment on the terms of the offer.

To contact the reporter on this story: Christian Schmollinger in Singapore at [email protected] .

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