Mabanaft exits speculative paper oil

German oil trader Mabanaft GmbH has ceased to make speculative bets in derivatives, a business in which it has little competitive advantage, to focus on trading physical oil in Asia and Europe, the chief executive of its parent company said. Christian Flach, chief executive officer of Hamburg-based Marquard & Bahls AG, said Mabanaft's offices in Rotterdam and Houston were shut to focus on growth in Singapore, Germany, and some other European countries.
"The speculative paper trade more and more dominates the international markets, and here the rule is: the more money you have the more you are in a position to move the market," Flach told Reuters in a telephone interview. "That is not the game we want to participate in, and neither do we have the means for that. There is no real value creation. That is why we have come to the conclusion to withdraw from the international trading arena and close our offices in Rotterdam and Houston." He added that Mabanaft would still use derivatives including swaps and futures for hedging.
Mabanaft has been in business for about 60 years. Its Rotterdam office opened around 2002-2003 and its Houston office in 2008, Flach said. On Monday Mabanaft said about 20 traders had been affected, as it reported a profit of 112 million euros in 2011 and a roughly 10 percent rise in its group equity to 1.3 billion euros ($1.7 billion).
"Where we have a function in is the wholesaling business, service station and other retail business and bunker fuel business," Flach said. The recent expansion into European markets of big Asian and Russian oil companies, which have deep pockets and can move large volumes of oil, have limited the arbitrage opportunities for smaller independent players to import middle distillates to Europe, pushing them into derivatives trading.
"What we have seen in the past few years is additional competition from new players, especially national oil companies from China, oil companies from Russia and India. We all target the same market in Northwest Europe, the same diesel or heating oil if you like," Flach said.
"Profitable arbitrage opportunity has basically disappeared. Blending, at least in our company, in our risk portfolio is not really viable anymore, because we do not have access to blending components in a way we need it," Flach said. "What traders typically resort to then in order to cover costs is paper trading. From our risk profile, in order to really play a significant role in paper business, we believe this should not be our function." Oil product blending has become less feasible for players such as Mabanaft, while oil refiners with surplus capacity can optimise blending.
Privately held Marquard & Bahls is not offering any tanks for sale as a result of the exit from paper trading. Its Oiltanking subsidiary, the world's second-largest oil storage and terminal firm, owns the tank assets, Flach said. Mabanaft, which traded 21 million to 22 million tonnes of oil last year, still plans to expand its wholesale, bunkering or marine fuel business, lubricants, service stations and distribution businesses in such countries as Germany, the UK, Austria, Hungry and Moldova. It has about 500 filling stations in Europe.