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Traders on Course for Bumper Year

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The world’s leading independent oil trading firms are on course to make bumper profits this year as they capitalize on the chaos that the coronavirus pandemic has unleashed on global markets. Since oil prices began their downward spiral in March, the big traders have used their multibillion-dollar credit lines with commercial banks to buy up barrels in bulk, put them in storage and then wait for prices to bounce back up -- as is happening now. A “super-contango” market, when the spot price is far below the futures price, is tailor-made for cash-rich traders who can afford to keep oil stored away for months -- sometimes on ships -- and sell it on later in the year. As befits an industry famed for its secrecy, the traders are keeping tight-lipped about their financial prospects for this year -- none more so than Swiss-based Vitol, the undisputed leader of the pack that last year traded around 8 million barrels per day of oil and gas liquids, including LNG (EIF Jul.3'19). The company does not publicize any details about its balance sheet but is believed to have made a net profit of around $2 billion last year, compared to $1.7 billion in 2018 and $1.5 billion in 2017. Given the scale of Vitol’s global storage network -- most of which is held by its VTTI joint venture with investment group IFM and, as of last year, Abu Dhabi National Oil Co. -- the company looks a good bet to rake in record profits this year, especially if the price recovery continues. Vitol’s closest rival, Singapore-domiciled Trafigura, is more transparent about its finances. In the year ending September 2019, the company made a net profit of $868 million, although it would have been over $1 billion without a one-off impairment charge related to its metals business. Trafigura’s net income was $873 million in 2018 and $887 million in 2017. As with Vitol, Trafigura is trading more and more barrels, with volumes increasing some 8% last year to 6.1 million b/d. The third-largest oil trader, Swiss giant Glencore, is a special case as it is the only one of the five to be publicly listed, in London and Hong Kong. It is also more diversified than the others, with metals and mining now dominating its portfolio. Last year, the company saw its operating profit drop 26% to $11.6 billion, although its oil trading division held up well and is expected to boost overall income this year. Glencore markets around 5 million b/d of crude and products but does not have the same range of oil assets that Vitol and Trafigura have, and it has chartered several supertankers to act as floating storage. Glencore has the added constraint of being under investigation in the US, both by the Department of Justice and Commodity Futures Trading Commission, over possible corruption related to business in Nigeria, Venezuela and Congo (Kinshasa) (EIF Oct.30'19). But it is not alone in this regard: in Brazil, Glencore, Trafigura and Vitol are being probed over allegations they paid over $15 million in kickbacks to state-owned oil company Petrobras. And, last year, Gunvor had to pay fines of $95 million to the Swiss authorities after being convicted of corruption in dealings in Congo (Brazzaville) and Cote d’Ivoire. Gunvor, which trades around 3.3 million b/d of oil and LNG, has had mixed fortunes in recent years. In 2015 the company posted record net profits of $1.25 billion, but in 2018 it recorded its first net loss, prompting a move to sell off noncore assets such as its 26% stake in Russia’s Ust Luga oil terminal. The company has since bounced back, recording a net profit of $381 million last year, partly due to a rapid growth in sales of LNG. All top five traders have jumped on the LNG bandwagon and between them they handle more than 50 million tons per year, with Gunvor leading the way with deliveries of 16 million tons last year, a year-on-year rise of 45%. Trafigura handles 12.6 million tons/yr and Vitol 10.5 million tons/yr. As new sources of supply emerge, especially in the US, and demand in India and China ramps, the traders’ share of sales looks certain to increase in the years ahead. But the traders are by no means immune to the disruptions caused by Covid-19, as they have to manage a range of assets, mostly downstream, that they have accumulated over the past decade. Vitol, for example, owns leading Turkish retailer Petrol Ofisi and has a Ghanaian gas development project in partnership with Eni. Trafigura own a 24.5% stake in India’s 400,000 b/d Essar refinery, since renamed Nayara Energy; Gunvor owns three refineries in Europe; while Glencore has oil production in Equatorial Guinea and Chad.

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Gas Prices
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