"Shell Trading lifts about 1.5 million barrels per day [bpd] of crude oil from the Gulf, making it one of the largest lifters of crude oil in the region," says Hilton Butler, Manager Crude Oil Acquisition, for the Middle East at Shell International Trading and Shipping Company Ltd. "We also lift crude from Syria and Yemen.

"Our largest supplier of crude oil in the Middle East is Saudi Aramco. All of our Saudi crude oil comes from Saudi Aramco's export terminal at Ras Tanura. Saudi Arabian crude oil has a major impact in all the crude oil markets of the world, since Saudi Arabia supplies volumes not only to the East, which is the main market for Gulf crude oil, but also to Europe, North America and Africa. An important characteristic of Saudi Aramco production is the wide range of crude qualities which Saudi Aramco is able to offer customers. This is one reason why Saudi crude is a key source of supply to the refinery system of the Royal Dutch/Shell Group.

"We are the largest marketer of Oman crude oil apart, of course, from the Government of Oman itself. Petroleum Development Oman [PDO], a company in which the Royal Dutch/Shell Group has a 34 per cent shareholding, is responsible for over 95 per cent of Oman's crude oil production and we market all of the Group's share of PDO's crude oil.

"Oman is our fourth largest source of crude oil in the world, the top three being the North Sea, Saudi Arabia and Nigeria.

"The Royal Dutch/Shell Group has had a long and well-established relationship with Iran for over 30 years. Shell Trading is a major lifter of Iranian crude and takes Iranian crude to Shell refineries in Europe, Africa and the Far East.

"Most of the crude oil we lift from Iran is loaded at Iran's Kharg Island export terminal, some 50 kilometres offshore in the northeast corner of the Gulf. The recent signing of the Nowrooz and Soroosh buy-back deal with the National Iranian Oil Company [NIOC] will allow new marketing concepts to be developed and implemented once the oil starts flowing in 2001.

"Whilst our liftings from Kuwait are lower now than earlier in the decade, when we loaded the first cargo to leave Mina al Ahmadi after the hostilities in 1990/91, we remain one of the biggest lifters of Kuwaiti crude. The long and close relationship with the marketing staff of Kuwait Petroleum Company [KPC] is now giving us the opportunity to assess and develop new options for the future.

"In the UAE, we lift from both Dubai and Abu Dhabi. In Dubai the Government sells a few cargoes of crude oil to a small group of oil companies, and we were pleased to join this group in 1993.

"The Royal Dutch/Shell Group has a shareholding in the Abu Dhabi Company for Onshore Oil Operations [ADCO], which is responsible for the production of all onshore oil in the Emirate of Abu Dhabi and which produces Murban oil. In addition to our equity oil from ADCO we lift oil direct from the Abu Dhabi National Oil Company [ADNOC].

"We are also a lifter of Masila crude oil from Yemen, which is sourced either from Yemen Oil and Gas or from the main equity holder of Masila crude oil, Canadian Occidental. This oil is acquired under monthly tenders. Unusually, Masila crude oil is priced off North Sea crude, whilst most crude oil from the Middle East is priced in relation to other Middle Eastern crudes.

"For the year 2000, we have a term contract for Syrian Light and Souedieh crude oils.

"Whilst the Royal Dutch/Shell Group has no investments in Qatar, Shell Trading resumed lifting crude oil from Qatar in 1998 after an absence of several years. The main crude oils exported from Qatar are Qatar Marine and Qatar Land, but new joint ventures between Qatar General Petroleum Company and third parties are now bringing new crudes, like Al Shaheen and Al Rayan, to the market.

"Last but not least," says Hilton, "we have had a long and close relationship with Bahrain National Oil Company [BANOCO]. Bahrain and the Kingdom of Saudi Arabia share the Abu Safa oil field which lies between the island of Bahrain and Saudi Arabia. The crude oil from this field is exported via Saudi Aramco's export terminal at Ras Tanura. The production level is approximately 140,000 bpd and we are a significant lifter of this grade.

explaining how Middle East crude oil is priced, Hilton says, "There are two basic systems for pricing crude oil out of the Gulf.

"The first is the formula-based official selling price, whereby the producer sets a price in advance of loading which is quoted as a differential to a regional marker price. There are three regional marker prices, Brent, West Texas Intermediate, and the average of Dubai and Oman.

"So, for example, for supplies to North America, Saudi Aramco would set a price differential to that of West Texas Intermediate [WTI], whilst to the East it would set a price differential to the average price of Dubai and Omani crude oil. This would be something like 'WTI less $2.80', or 'Dubai/Oman plus 80 cents'. Assessments of the prices of these marker crudes and of other crudes are published daily in trade publications and the business press.

"The second way of setting the price of crude oil is the retro-active official selling price. With this method, the producer sets the price after a loading has taken place and the crude oil is on the high seas.

"For example, the Oman Ministry of Oil and Gas will announce the price for Oman crude which was loaded and exported in February during the first few days of March. Obviously, for this system to work, there has to be a considerable spirit of trust on both sides. The three producers who use this method are Oman, Qatar and Abu Dhabi.

"Shell Trading contributes to the process whereby producers set Official Selling Prices [OSPs] by holding discussions both with our customers and also with the producers themselves. The aim is, of course, to help ensure that the OSP is fair to both the buyer and producer and properly takes into account all the factors influencing the value of the particular crude, including changes in the supply and demand balance, the price of other, similar crudes, any changes in the quality of the crude and so on."

As for allocation cuts, Hilton says, "Over the last two years, in a series of steps, OPEC has reduced production levels by some 2 million bpd to adjust to the effect of the Far East economic crisis on the demand for oil and the resulting fall in oil prices. Middle East producers have dealt with these production cuts in differing ways.

"Some producers have distributed the cuts evenly by both grade of crude oil and by destination. In some other cases, however, producers have preferred to cut back on the less remunerative grades and destinations to enable them to maximise their revenues.

"These cuts in supply have further exacaberated the tension in the market which has been created by the arrival of new buyers of crude oil for refineries which have already been brought on line, or are about to come on line, in India and Taiwan."

"Shell Trading staff regularly pay visits to our Middle East producing partners to discuss the market, pricing and new opportunities. The Middle East is very important to our global oil trading operations and represents some 40 per cent of our daily global lifting, a figure which is certain to rise in the future," he concludes.