MOSCOW (Reuters) - Swiss commodities trader Trafigura is expanding its ties with Russia’s Rosneft (ROSN.MM) and is set to become the biggest buyer from the sanctions-hit Kremlin oil major when it adds refined products to its already huge purchases of crude oil.
Trafigura [TRAFG.UL] said it had agreed to buy additional volumes from Rosneft from January 2016, mainly refined products.
The company declined to disclose details. Trading sources said they estimated the total volumes at 20 million tonnes, equal to the entire annual output of two large refineries or enough to meet the consumption of a country such as Spain for half a year.
“The marketing and supply arrangements cover refined products and were agreed on market terms after a competitive tender process. The transactions are fully compliant with international sanctions and no pre-financing is involved,” a Trafigura spokesman said.
Over the past year, Trafigura has been buying 20 million tonnes of crude oil from Rosneft and the addition of refined products will make it the single biggest corporate buyer of oil from Russia. Only China is buying more oil and products from Russia.
Rosneft has expanded its business with Trafigura because its ambition to create a major trading division has been thwarted by sanctions imposed by the West on Russia over Moscow’s actions in Ukraine.
Last year, Rosneft abandoned plans to buy the oil trading division of U.S. bank Morgan Stanley and since then it has looked for partners to trade its huge resources and generate maximum profit amid steeply falling oil prices.
From February this year, Rosneft has relied on Trafigura to sell large volumes of crude as the Swiss trader was prepared to pay early for shipments.
Receiving payments early -- even if by only 20-30 days not forbidden by sanctions -- was important to Rosneft as it was forced to explore other funding options when its access to Western capital markets was shut down.
Trafigura Chief Financial Officer Christophe Salmon told Reuters that early payment to Rosneft within the 30-day limit had not exceeded $400 million per month after oil prices fell significantly in recent months.
Prior to this year, trading houses Vitol [VITOLV.UL] and Glencore (GLEN.L) have dominated the trade with Rosneft after they raised $10 billion in loans for the firm to help it fund the TNK-BP purchase.
Sanctions imposed on Russia in 2014 have made long term pre-financing deals impossible.
The latest developments with refined products have confused the market as several traders said they had expected Rosneft to offer via tenders as it did for 2015, when it sold 3.1 million tonnes of diesel from the Baltic port of Primorsk to a number of buyers.
“As far as I know there have been no tenders for diesel out of Primorsk for 2016,” one trader said. Trafigura said it had won oil in tenders. It gave no further detail. Rosneft, which is not obliged to hold tenders, declined to comment.
(This version of the story was refiled to change byline)
Additional reporting by Dmitry Zhdannikov; editing by William Hardy and Louise Heavens