Glencore bets big on North Sea oil, holds over 30 percent of June benchmark supply

LONDON (Reuters) - Glencore has built up one of the largest positions in part of the Brent crude market which acts as a benchmark for global oil prices since the start of the year, when Royal Dutch Shell deployed a similar strategy, trade sources say.

The logo of commodities trader Glencore is pictured in front of the company's headquarters in Baar, Switzerland, September 30, 2015. REUTERS/Arnd Wiegmann/File Photo

The Brent market is based on four North Sea crude oils - Brent, Forties, Oseberg and Ekofisk, or BFOE. Glencore is holding more than a third of the 37 BFOE cargoes loading in June and is expected to acquire more, the sources said.

A London-based spokesman for Glencore declined to comment on the company’s trading strategy.

Glencore has been acquiring June BFOE cargoes through the “chains” - a forward market in which cargoes soon to be assigned loading dates are traded, according to trade sources citing data from pricing agency Platts.

“It’s definitely a bold statement of market view by Glencore,” said a trading source with another company operating in the North Sea. “You’d have to be in their heads and in their books to know exactly what’s going on.”

Just under half of June’s supply of the four benchmark crude grades amounts to nearly 10 million barrels of oil - over 10 percent of daily world production.

“Glencore have got big positions all over the place in BFOE,” said another North Sea trading source. “They are consistently keeping cargoes in the chains.”

The company has taken this position as supply underpinning the Brent contract is set to be smaller than in a typical month. In June, output of the BFOE crudes will fall to 740,000 barrels per day (bpd) - the lowest in almost two years - mainly because of maintenance at Ekofisk oilfields.

This, say analysts, helped Brent futures for June delivery strengthen against the July contract and eventually trade at a premium - a structure known as backwardation and unusual when supply is generally ample.

“Glencore have obviously been very bullish,” the first trade source said. “Part of the explanation would be that they recognized there would be next to no Ekofisk around and the North Sea market would tighten up. So, why not?”

With the expiry of the June Brent futures contract at the end of April, the spread between the first-month Brent contract moved to a discount to the second month, known as contango and a more typical structure when supply is ample.

Trading houses such as Glencore, along with rivals Vitol, Trafigura, Gunvor and Mercuria, buy and sell physical commodities, from natural gas, to copper or crude oil, moving millions of tonnes of raw materials around the world each year.

There are a small number of participants in the Brent market and it is not uncommon for them to take large positions, which sometimes lead to unusual patterns in related physical and paper markets, according to other traders.

In January, Shell accumulated a large number of Forties cargoes and was expected to ship many of them to South Korea. This coincided with the last time the first-month Brent contract traded in backwardation to the second.

Additional reporting by Dmitry Zhdannikov; Editing by William Hardy