UPDATE 1-COLUMN-Will a bigger Rosneft shake up Russia's oil trade?: Campbell
* Adds detail on Gunvor in paragraphs 6-10
NEW YORK, Oct 23 (Reuters) - Rosneft will eclipse the Western supermajors in crude output once the Russian state-controlled oil producer takes over rival TNK-BP, but despite its size, the company will hardly punch its weight in energy trading. That is because Rosneft, like most of its Russian peers, has outsourced the marketing of its crude and refined products to foreign companies. Russia's influence over oil markets is strangely limited despite the fact it is the world's top oil producer and one of the globe's biggest oil exporters. The reason is Russian producers trade very little of the nation's gigantic output. Swiss trading houses Glencore and Vitol now dominate Russia's oil trade and control an estimated one-third of the volume that the country will sell to Europe this month via ports in the Black and Baltic seas.
Oil majors BP Plc and Royal Dutch Shell Plc are also significant players in the marketing of Russian oil. Indeed, Western firms' grip over Russian oil exports has increased in recent months as privately-held trader Gunvor has at least temporarily ceded market share. Gunvor rose spectacularly over the last ten years to the top ranks of global energy trading, bolstered by its extensive business with Russian state energy companies. As a result, the recent loss of term supplies has prompted considerable speculation in the oil trading community. However the company, which rejects claims advanced by some Russian opposition figures that its success was due to close personal ties between its co-founder Gennady Timchenko and Russian President Vladimir Putin, says the loss was entirely due to its unwillingness to overpay for crude. The business of buying and selling Russian crude is about more than making a profit buying low and selling high, though. Controlling huge volumes of Russian oil has given Vitol, Glencore, BP and Shell enormous market power, particularly in the Mediterranean, where the European Union ban on purchases of Iranian oil has limited refiners' alternatives to Russia's Urals blend. And having a hammerlock on the Urals stream in turn gives these companies considerable influence over the direction of Dated Brent, the benchmark price for much of the sea-borne oil traded worldwide. So it is more than a simple business deal of buying low and selling high. A strong position in the Urals trade is a linchpin of many companies' global trading strategies.
SOMETHING ON THE TABLE To be sure, there are benefits to both sides. Russian producers that sell through intermediaries do not need to take the time and expense to set up their own marketing networks. They also gain access to short-term financing and face reduced working capital requirements, not insignificant benefits. And Russia still retains considerable influence over the destination of its crude oil exports. State pipeline monopoly Transneft plays a huge part in determining how Russian crude finds its way to market. The Russian export tax policy is equally powerful, sending signals to producers to refine oil instead of exporting crude. But clearly the Russian producers are not getting top dollar when they make these sorts of deals. And with growing debts and increased management sophistication, these companies, particularly Rosneft, may start chipping away at the market power of foreign traders. Rosneft is loading up on debt to finance its $55 billion deal to buy the bulk of TNK-BP from controlling shareholders BP and the AAR group of Russian businessmen. Even before the announcement of the Rosneft takeover, TNK-BP was preparing to dilute the power of trading companies in 2013 control. Although this policy was not expected to have much of an impact at TNK-BP, the erosion of oil traders' market power would be substantial if the enlarged Rosneft, which will control more than 35 percent of Russia's oil output, implements the plan. And there are other reasons to believe Rosneft may become a bit more savvy in trading. BP, long the most entrepreneurial oil trader, has emerged as a strategic partner for the Russian giant. The London-based company, which is already a joint venture partner with Rosneft in several German oil refineries, will end up with nearly a 20 percent stake in the Russian giant as well as two seats on its board. That gives BP some influence over corporate decisions and may well contribute to a more sophisticated commercial operation emerging at Rosneft. If so, that could prove a headache for the companies that now dominate the Russian oil trade. At the very least, margins from trading may come under pressure. Lower trading margins would mean that those companies without European refineries of their own, or at the very least, exclusive supply agreements with European plants, would face very tough competition. More daunting, however, would be a Rosneft that opts to throw its weight around in the Urals market for its own benefit. Such a development would upend the power structure in the world oil market, probably at the expense of Western companies. If Russia really does want to deepen its control over the oil industry, such a move looks increasingly likely.