Socar's Oil Trading Arm Rolls Back Expansion After Weak Profits

Azerbaijan's Socar is refocusing its trading arm's activities on LNG and its new Turkish refinery while winding down less profitable trades as it feels the sting of weak profits, sources familiar with the matter said.

Many trading houses had weaker performances in 2017 due to a less lucrative, backwardated market structure for much of the year and relatively low volatility.

Geneva-based Socar Trading also was stung, costing its chief executive Arzu Azimov his job.

The firm was set up in 2007 and has become a global player in the last few years, having previously been only a marketer of its country's crude, Azeri Light. Poaching top traders from established rivals, it moved into paper trading and third-party oil.

At the end of May, executive chairman Adnan Ahmadzada was appointed and the CEO role was taken by Mariam Almaszade, formerly of trading firm Maddox.

Last year the firm traded 1.54 million barrels per day of crude, of which about 1.06 million bpd was third-party, the company said. Combining crude and oil products, it traded 104 million tonnes.

The firm closed its back office in Estonia's capital Talinn last month and plans to exit fuel oil trading by the end of the year, one of the sources said.

At least four traders in the heavy distillates division have left, including manager Pino Petricone, the sources said.

Adding impetus is an upcoming change in shipping fuels. In 2020, the International Maritime Organization (IMO) will ban ships using fuel with a sulphur content higher than 0.5 percent, compared to 3.5 percent now, unless a vessel has equipment to clean up its sulphur emissions.

The industry expects demand for fuel oil to plummet as few ships have such equipment.

Socar has previously grappled with some over-stretches. The firm announced the closure of its Calgary office at the end of 2017 to focus on its Houston one instead. It also previously left middle distillates, such as diesel.

For traders, liquefied natural gas is the flavour of the month. As the market slowly becomes more liquid, firms are rapidly expanding their LNG divisions and investing in infrastructure.

Socar sold its first cargo of LNG in 2017 as part of its investment in an LNG-to-power project in Malta.

It is studying several options in Africa and Asia and plans to increase its headcount in London, including with more LNG-focussed hires, one of the sources said.

Looking forward, the firm may beef up products trading once more after its Star refinery in Turkey starts up, including a return to middle distillates depending on possible export volumes and how the market looks after the IMO change, they said.

Socar is sending a cargo of Azeri Light and Russian Urals crude to start the commissioning of its new 200,000-barrels-per-day refinery in Turkey.

The process is expected to be complete by the end of October and the plant will later run mainly on medium sour grades, namely Russian and Iraqi oil, one of the sources added.

By Julia Payne, Additional reporting by Ahmad Ghaddar and Shadia Nasralla in London, Devika Krishna Kumar and Liz Hampton in New York