LONDON, Nov 25 (Reuters) - When Morocco’s only oil refinery suspended production in early August due to financial difficulties, it owed $450 million to trading houses, including Glencore, Vitol and BB Energy, according to traders and refinery sources familiar with the situation.
While the amount is relatively small compared with the balance sheets of large trading houses, it underscores simmering trouble in high-risk, high-margin developing regions that did not insure themselves against the steep decline in oil prices.
The idled refinery - the 200,000 barrel per day (bpd) Societe Anonyme Marocaine de l’Industrie du Raffinage refinery, known as Samir - is a further sign of emerging risks now that oil prices appear set to stay lower for longer.
“They had a very large inventory of crude oil at a very high price,” said Mark Elliott, chairman of Africa-focused consultancy CITAC. “And they were not hedged.”
Samir reported a first-half loss of roughly $223 million this year, following a $354 million hit it took at the end of 2014, due primarily to losses on inventory when crude oil prices plummeted.
Elliott said that the bulk of the African oil industry, from refineries to major producers such as Nigeria and Angola, also do not hedge to protect themselves against price fluctuations.
The structure of the debt owed by Samir was not immediately clear. Sources said some traders were owed oil products, while others had given Samir a mix of their own money and money borrowed from banks - shielding the trading house from cash flow problems related to the fallout.
Glencore, Vitol and BB Energy all declined to comment. Sources at Glencore and Vitol said the two companies had necessary risk procedures in place when dealing with Samir.
But Samir’s unexpected idling underscores a problem for these types of prepayment deals through which companies and countries who need cash upfront get their financing from traders and banks while pledging exclusive access to oil or refined products.
Last month, Vitol’s Chief Executive Ian Taylor told the Reuters Commodities Summit he was worried about the rise of non-performing oil industry loans and government obligations in the volatile commodities environment.
“I am actually increasingly concerned by that,” Taylor said. “The stress of $40, or $50 (oil), takes time to come through the system. And it’s starting to come through the system.”
“This is an area where the industry has got to be really careful,” Taylor said, adding that he expected banks to become “much tougher” on emerging markets.
As Morocco’s only refinery, Samir would have appeared to be a safe bet, with a captive market that consumes some 300,000 bpd of petroleum products.
But the refinery, controlled by Saudi’s Corral Petroleum Holdings, overextended itself with a $1 billion upgrade to produce better quality fuel, traders said.
Then crude oil prices crashed, which was good for refineries in nearly every other region - but less so for Samir.
Samir itself did not return requests for comment.
Elsewhere, importers, many backed by trading houses, are owed some $2 billion by Nigeria’s government in back payments for gasoline subsidies.
Other countries, such as Venezuela, are relying on trading desks of oil majors such as Statoil, Shell and Total and traders like Vitol, to import crude oil.
As for Samir, three months after announcing their imminent restart, a cargo of crude oil that arrived in August remained parked off the shores of Mohammedia, according to traders and Reuters vessel tracking.
The roughly $5 decline in oil prices alone since the cargo arrived in mid August means the cargo lost nearly $4 million in value - not counting the cost of the parked vessel itself.
Samir is working on a fresh infusion of capital, and has said it will restart. But Morocco’s tax administration seized its bank accounts in pursuit of a $1.3 billion tax claim, making a restart or debt repayment even more difficult. (Additional reporting by Ron Bousso; Editing by William Hardy)