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

Advertisting

‘Judge President Hlophe tried to influence allocation of judges to...

Deputy Judge President Patricia Goliath accuses Hlophe of attempting to influence her to allocate the case to judges he perceived as ‘favourably disposed’ to former president Jacob Zuma

SAA grounds flights due to low demand

SAA is working to accommodate customers on its sister airlines after it cancelled flights due to low demand

Isabel dos Santos did not loot Angola alone

Once again, Western auditing and consulting firms shamelessly facilitated corruption on an international scale

Lekwa municipality won’t answer questions about why children died in...

Three children are dead. More than a dozen homes have been gutted by fires in the past six months. And, as...
Advertising

Press Releases

Upskill yourself to land your dream job in 2020

If you received admission to an IIE Higher Certificate qualification, once you have graduated, you can articulate to an IIE Diploma and then IIE Bachelor's degree at IIE Rosebank College.

South Africans unsure of what to expect in 2020

Almost half (49%) of South Africans, 15 years and older, agree or strongly agree that they view 2020 with optimism.

KZN teacher educators jet off to Columbia University

A group of academics were selected as participants of the programme focused on PhD completion, mobility, supervision capacity development and the generation of high-impact research.

New-style star accretion bursts dazzle astronomers

Associate Professor James O Chibueze and Dr SP van den Heever are part of an international team of astronomers studying the G358-MM1 high-mass protostar.

2020 risk outlook: Use GRC to build resilience

GRC activities can be used profitably to develop an integrated risk picture and response, says ContinuitySA.

MTN voted best mobile network

An independent report found MTN to be the best mobile network in SA in the fourth quarter of 2019.

Is your tertiary institution is accredited?

Rosebank College is an educational brand of The Independent Institute of Education, which is registered with the Department of Higher Education and Training.

Is your tertiary institution accredited?

Rosebank College is an educational brand of The Independent Institute of Education, which is registered with the Department of Higher Education and Training.