Vitol, Glencore dominate Russian oil trading

* Traders grab lion's share as rival Gunvor cedes positions

* Breakthrough for Glencore as it gets Rosneft invitation

* Vitol dominates Mediterranean trade, CEO meets Sechin

By Dmitry Zhdannikov

LONDON, Oct 9 (Reuters) - Swiss trading houses Vitol andGlencore have become the largest players in the Russianoil export market, dominating supplies from the world's biggestproducer after a switch in Kremlin policy opened up the trade.

Between them, the world's two biggest oil traders will tradeover 4 million tonnes of Russian oil worth over $3.2 billion inOctober, or over a third of the volumes that Russia will sell toEurope via its Baltic and Black Sea ports, according to Reuterscalculations.

That marks a departure from how oil was sold only a fewyears ago, when Kremlin-controlled firms such as Rosneft

or Gazprom Neft sold their oil mainly via Gunvor, atrading house co-owned by Russian businessman Gennady Timchenko.

"Everywhere you saw Gunvor before, Glencore is now writtenin capital letters. Vitol has also grown scarily big," a veteranRussian trader said. Vitol and Glencore declined to comment.

The oil industry, which has for years watched the Kremlinincrease control over Russia's natural resources, is stilldivided over whether Gunvor surrendered its positiondeliberately or the change came after orders of some kind fromthe Kremlin.

Russian opposition figures have for years suggested Gunvor'ssuccess was due to close ties between Timchenko and Putin.

Both men denied that. Putin said he had never helpedTimchenko, and Gunvor, which had revenues of more than $80billion last year, said its success was due to competitiveprices and the experience of its traders.

However, Gunvor has been left with almost no Russian crudeto sell after Rosneft, which produces as much oil as Nigeria,awarded its tender to Vitol, Glencore and Shell.

Gunvor says it has deliberately cut exposure to expensiveRussian oil and although it took part in the latest tender tobuy crude for 6 months it did not offer the highest prices.


Rosneft says it awards tenders only based on the best offersfor its crude. Vitol and Glencore have indeed offered thehighest prices, outbidding rivals at the latest Rosneft tender.

The big difference, however, was that Glencore was allowedto bid at such tenders for the first time, sources say.

"Glencore had been as banned a word at Rosneft as the dollarwas in the Soviet Union," said a Rosneft insider.

Rosneft declined to comment on changes to its tenderpractices, which happened soon after Sechin, previously deputyprime minister, took over as Rosneft's chief executive.

Several insiders said Glencore's relatively modest positionsin Russian oil up until this year were the result of rockyrelations between Sechin and Russian aluminium tycoon OlegDeripaska.

Glencore has a minority stake in Deripaska's aluminium giantRUSAL. Coincidentally or not, Rosneft started treating Glencoredifferently as Gunvor's dominance shrank.

"Glencore was the biggest absentee at Rosneft's tenders andit was clearly an anomaly," said a source familiar with thedevelopments. Glencore contacted Rosneft a number of timesseeking to overturn the practice and be included in tenders.

A meeting earlier this year between Glencore and the Rosneftboard, including Sechin, has finally won the trader the right toparticipate in tenders as it said it could pay top dollar.

"As soon as Glencore got invited, they started winning asthey offered some of the most competitive prices," he said.


Apart from Rosneft's barrels, Glencore markets in Russiacargoes from mid-sized firm Russneft and small producers. Vitolsells cargoes from Kazakhstan and mid-sized producers.

Unlike Glencore, Vitol was a regular at Rosneft's tender butthe latest results surprised even the industry's veterans.

"I cannot remember anyone being so dominant in my 20 yearsplus on this market", said a veteran Russian oil trader.

Thanks to the Rosneft tender, Vitol has acquired 40 percentof Russian exports from the Black Sea in October and that willlikely last at least until March. Russian oil is the main sourcrude grade in the Mediterranean market after the ousting ofIranian barrels due to Western sanctions.

Details of the shipments point to an even bigger dominanceby Vitol as many Russian producers' cargoes go straight to theirEuropean refineries. That limits the amount that can go to thespot market, thus increasing Vitol's power to dictate prices.

"There is nowhere to run. If you need Urals (oil) in the Medyou have only one number to dial," said another trader.

Vitol is known in the industry for taking big bets such asits heavy involvement in the Libyan revolution last year when itsent tankers to the rebels in the middle of a civil war.

Prior to winning the Rosneft tender, Vitol's long-time CEOIan Taylor, a Briton, met Sechin, industry sources said.

"I cannot think of anyone else who would dare to take such adominant position," a veteran participant in Rosneft's tendersaid. "You can win but it can also backfire spectacularly if themarket turns against you."

(Additional reporting by Gleb Gorodyankin,; Editing by GilesElgood)