Low oil prices put traders in clover

Even in the closely knit energy industry they are virtually unknown. On the streets of Geneva, London and Houston they go unrecognised. Yet a handful of executives were oil-industry standouts in 2015. They thrived because of, not despite, plunging crude prices.

From Total SA to Trafigura Group Pte, trading has emerged as the oil industry’s cash cow.

Take Vitol Group, the world’s largest independent energy-trading operation, as an example. The 50-year-old company reported a net profit of $1.6-billion last year – its fourth-highest ever, buoyed in part by the strategies employed by teams headed by chief oil trader Mark Couling.

“The oil trading industry as a whole enjoyed the best year since 2008-2009,” said Damian Stewart, managing director at Human Capital, a commodities-focused headhunter.

Oil traders were rewarded by a surge in volatility. They also capitalised by holding on to crude to take advantage of the market contango – a situation where future prices are higher than current prices – allowing them to buy oil cheaply, store it in tanks to sell later and locking in a profit through derivatives.

Vitol hired one of the world’s largest tankers, the Overseas Laura Lynn – a 380m-long vessel (about equal to the Empire State Building laid on its side) capable of carrying three million barrels of oil – to store crude offshore of Dubai.

Competitors including Glencore prospered by hiring capacity on land from St Lucia in the Caribbean to Saldanha Bay in South Africa.

Look also at Glencore, the world’s largest commodities trader. While its mining business suffered, its energy trading earnings before interest and tax rose to $778-million last year, up 49% from 2014.

The company profited from “high market volatility, entrenched contango, a decent refinery margin environment and promising returns on tanker freight”, Glencore said.

“A combination of low prices and contango is great for traders,” said Olivier Jakob, managing director of oil consultancy Petromatrix. “It is a profitable environment.”

It wasn’t just the independent houses that did well. Although better known for their oil fields, refineries and petrol stations, BP, Royal Dutch Shell and Total SA are also the world’s biggest oil traders.

While the companies disclose little about their trading performance, BP chief financial officer Brian Gilvary offered a glimpse in February of the firm’s 2015 riches. He said that the in-house trading arm enjoyed “one of the highest results we have seen for some time”.

In the first quarter of last year alone, BP’s trading profits surged $350-million above what the company considers the “normal” level, Gilvary said. The sum was equal to almost 15% of the company’s total quarterly adjusted profit.

Total Trading SA, a Geneva-based unit of the French company, saw an increase of almost 8% in crude and refined products’ trading volumes – in the 2015 market, more volumes may have easily translated into higher profits.

At Shell, the trading teams contributed healthy profits as the rest of the business suffered under the weight of lower oil and gas prices.

It was at the independent oil trading houses where the good times were most visible. At Singapore-based Trafigura, the oil-trading team had its best year ever. Its gross profit soared 50% to $1.7-billion in the year through September.

Mercuria Energy Group profited from storage opportunities and price volatility, particularly in North Sea oil, sources said.

Gunvor Group reported its best-ever year, boosted by asset sales. But underlying trading and refining profits were also strong, up 10% from 2014.

“Gunvor had a number of desks that did very well in 2015, in addition to refining and other areas,” said spokesperson Seth Pietras.

Noble Group saw a banner year in oil and energy trading from the US – a rare bright spot for Asia’s largest commodity trader.

As always, though, each trader began 2016 with a blank slate and this year may prove more challenging. Contango, for example, is diminishing.

The price difference between Brent futures for immediate delivery and one year later has fallen to minus $3.5 a barrel, down from a peak of minus $12 a barrel in early 2015. And volatility isn’t as high.

Yet, despite the obstacles, Ian Taylor, Vitol chief executive, said: “Opportunities in the physical market continue to exist.” – © Bloomberg

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Related stories

The European companies that armed the Ivorian civil war

AN OCCRP investigation reveals that Gunvor and Semlex brokered weapons-for-oil deals in early 2011 when Côte d’Ivoire was in crisis, despite a UN arms embargo

Load-shedding’s silver lining: Lower levels of sulphur dioxide air pollution

Analysis of Nasa data shows that although SO₂ emissions around the world have fallen by about 6%, the levels are high enough to harm the health of billions of people.

Controversial oil reserves sale ‘corrupt’ and ‘dishonest’ court hears

The sale of South Africa’s crude oil reserves is now facing a criminal investigation by the Hawks

The coronavirus and the rise of the network society

Two kinds of virus, one biological and the other digital, have spread around the world, changing society and creating social elites

Remember, corporations are adept at deflection campaigns

In this moment where those corporations are “stepping up” to the Covid-19 challenge, let’s not forget their true character and where and how they have made their money

Giant new refinery: curse or boon?

Saudi’s Aramco is planning an oil refinery in South Africa, but experts say the magaproject is risky

Subscribers only

Covid-19 surges in the Eastern Cape

With people queuing for services, no water, lax enforcement of mask rules and plenty of partying, the virus is flourishing once again, and a quarter of the growth is in the Eastern Cape

Ace prepares ANC branches for battle

ANC secretary general Ace Magashule is ignoring party policy on corruption-charged officials and taking his battle to branch level, where his ‘slate capture’ strategy is expected to leave Ramaphosa on the ropes

More top stories

Journey through anxious Joburg

A new book has collected writing about the condition of living, yes, with a high crime rate, but also other, more pervasive existential urban stresses particular to the Global South

Football legend Maradona dies

The Argentinian icon died at his home on Wednesday, two weeks after having surgery on a blood clot in his brain

Covid vaccines: Hope balanced with caution

As Covid vaccines near the manufacturing stage, a look at two polio vaccines provides valuable historical insights

Under cover of Covid, Uganda targets LGBTQ+ shelter

Pandemic rules were used to justify a violent raid on a homeless shelter in Uganda, but a group of victims is pursuing a criminal case against the perpetrators

press releases

Loading latest Press Releases…