Trading the noise vs trading the barrel

Headlines will continue to oscillate between emotional peaks and valleys for the foreseeable future, making derivatives increasingly unreliable.

In the interim, physical trading may simply prove the more consistent business model — at least until markets are no longer reacting to the cortisol levels of a single individual.

Nghi Son: a refinery under pressure

Nghi Son refinery in Vietnam has now been cut off for two months from the roughly 4 million barrels per month of Kuwaiti medium sour crude that it typically processes.

The response has been a forced and increasingly creative reconfiguration of its crude slate.

The refinery is clearly attempting to compensate for the loss of Kuwaiti medium sour by incorporating a mix of alternative crudes and increasing reliance on VGO.

Refining creativity: hybrid optimisation

There is a notable effort to optimise an inherently less favourable crude slate.

The likely approach is a hybrid model:

• VGO routed through FCC units to maximise gasoline yield (US-style optimisation)
• VGO routed through hydrodesulphurisation units to increase middle distillate recovery (China-style optimisation)

Given the constraints, this represents a pragmatic attempt to recover value across the barrel.

Ownership and signalling

The equity structure of Nghi Son is:

• KPC: 35.1%
• Idemitsu: 35.1%
• Petrovietnam: 25.1%
• Mitsui: 4.7%

Japanese behaviour around this refinery may serve as a useful indicator of how Japan itself intends to manage its broader refining challenges, particularly as it transitions toward WTI and faces similar difficulties in extracting middle distillates.

Regional dynamics

Across Southeast Asia, trading opportunities are uneven.

Taiwan and Korea are largely covered by US supply. Japan is self-sufficient in terms of operational control.

Indonesia and Thailand are increasingly dominated by a combination of major oil companies and large trading houses.

Vietnam stands out as the market where opportunity still exists — but it is not straightforward.

The storage constraint

Vietnam holds only 15–20 days of strategic storage.

This compares to:

• Japan: 254 days
• Korea: 110 days
• Thailand: 103 days
• Taiwan: 100 days
• Indonesia: 23–28 days

This lack of buffer creates both vulnerability and opportunity.

The conduit problem

Developing Vietnam commercially requires patience and local alignment.

Cold approaches are unlikely to succeed and may result in prolonged delays.

Existing structures reflect this reality:

• Sahara owns PVOil Singapore
• Talaveras owns PVOil UAE

These arrangements highlight the necessity of operating through local or aligned intermediaries.

However, they may also present partnership opportunities for market entry.

The ideal crude and execution framework

In an ideal scenario, Nghi Son would run Iranian or Russian medium sour.

Given intermittent waivers from the DOJ, this may not be entirely out of reach.

However, supply alone is not enough.

The key requirement from the Vietnamese side is currency stability.

They will likely require hedging of currency exposure for at least six months on a term delivery basis.

The Vietnamese Dong is not formally pegged to the US Dollar, but the central bank actively manages it to track the dollar closely.

The optimal structure therefore becomes:

• Purchase Iranian crude using AED (USD-pegged)
• Purchase Russian crude using Azerbaijani Manat (USD-pegged)
• Resell into Vietnam in VND

The Azerbaijani Manat is particularly attractive as its central bank effectively manages exposure to both the Ruble and Yuan.

Structural optionality

Beyond crude and currency, there may also be opportunities through redocumentation.

Vietnam’s updated list of Double Taxation Agreements (as per PWC) provides potential avenues for optimisation:

* Not yet in force.