Foyal Dutch Shell’s high-profile buying spree of Asia’s benchmark crudes last month is the clearest signal yet that the major has rediscovered its appetite for trading risk after a five-year hiatus.

Shell hoovered up over 10 million barrels of Dubai and Oman crude, the main benchmarks for Asian refiners, in what appeared to be the market’s biggest leveraged trading play in years, drawing flak from Asian refiners still haunted by past squeezes.
While many traders are still baffled as to how Shell made money out of the strategy, they say its willingness to embark on such a high-profile venture spoke volumes.
“Risk is no longer a bad word in Shell,” said one senior crude oil trader with a Western trading company.
The spree was the latest sign of a shift in the balance of trading power among the world’s biggest oil firms, with BP pulling in its horns amid bad US publicity, while Shell shakes off its past mishaps and pays more to retain top traders.
By the company’s own measure it was taking slightly more oil trade risk than Total but not quite half as much as industry leader BP last year, with an average daily Value at Risk (VaR) of $12.5 million.
Shell was once a regular in the market limelight employing strategies akin to BP and other companies. But traders say its profile shrank somewhat after 2002 amid a corporate scandal over its booking of oil reserves and a $30 million fine against its US gas and power trading arm by US regulators.
The readiness to test its limits have become more apparent since Mike Conway took charge of Shell’s global trading operations 12 months ago, traders at other companies say.
A Shell spokesman said the company does not comment on specific transactions, market positions or trading strategies.
The risks of a high-profile binge run beyond the financial.
During September, Shell bought 418 “partial” cargoes of November-loading Dubai and Oman crude of 25,000 barrels each, during the half-hour trading window that assessor Platts uses to determine its benchmark prices, the biggest physical volume of Middle East crude ever purchased through the window mechanism.
Shell can point to fundamentals to support its heightened appetite: maintenance at offshore oilfields will remove some 18 million barrels of Abu Dhabi crude from the market next month, a factor well reported for months.
That argument does not win over many refiners, who point to a near $1.50 a barrel spike in the premium for Dubai crude plus the shrinking discount to higher-grade Oman as a sign that Shell’s buying drove prices higher than they would have been, potentially crimping profits at firms Shell trades with regularly.
On top of the maintenance there are other mitigating factors.
Although Shell effectively bought about four times more crude than is physically produced by Dubai, it only acquired about a third of the underlying benchmark, which was broadened to allow delivery of Oman (2001) and Upper Zakum (2006) instead, measures imposed to make it more difficult to corner the market.
That’s a far cry from past squeezes, in which traders would absorb an entire slate of benchmark crude, a strategy that sometimes provoked a harsh response from refiners.