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Are U.S. Oil Assets Too Expensive For Oil Traders?

Pipeline welder

Physical oil assets in the United States may have become so expensive that they are no longer appetizing for entities that may have at one time considered them for acquisition, according to Ian Taylor, chief of the trading house Vitol.

Vitol, among other trading companies, cite the shale boom in the United States two years ago that flooded the markets with large amounts of oil, which in turn fueled what some traders called a “Klondike Rush” on U.S. assets.

According to Taylor, as the market now stands, trading houses are “being crowded out” of purchases, and have been selling some of their holdings in a market "priced at some of the highest multiples in the world."

Speaking at the Reuters commodities summit, Taylor said “Private equity and U.S. finance will continue to make the United States a place where a lot of money is invested, it's extremely efficiently done. I'm not necessarily sure it suits traders."

In September, the company announced that it planned to sell its Permian Basin crude oil unit to Sunoco Logistics Partnerships LP, a pipeline operator. That sale involves a crude oil terminal in Midland, Texas, of about 2 million barrels, along with a crude oil gathering and mainline pipeline system in the basin. Vitol has been a big part in the physical trading markets outside the U.S., and was the first company to export U.S. crude after the ban on exports was lifted in 2015.

Taylor said that the offer for the sale was too good to pass up. He added that the sale will not impact the company’s efforts in the physical trading market. Taylor commented: “It could be that we're making a mistake. But they were good opportunities to sell assets."

Lincoln Brown for Oilprice.com

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