Despite low and volatile oil prices, increasing inventories, and credit problems, "[b]ankers estimate the five largest [oil trading houses] -- Vitol, Glencore, Trafigura, Gunvor, and Mercuria -- are likely to earn between $3.5bn and $4bn in total, making 2009 their best year," the *Financial Times* of London said Sunday.[1] -- Not that they like to talk about it: "'We had a very good year,' says Marco Dunand, chairman of Mercuria," Javier Blas reported. -- "Pierre Lorinet, chief financial officer at Trafigura, says: 'Business has been good.'” ...
1.
Energy
RECORD YEAR FOR TOP FIVE CRUDE TRADERS
By Javier Blas
Financial Times (London)
December 20, 2009
http://www.ft.com/cms/s/0/67f02a72-ed8d-11de-ba12-00144feab49a.html?nclick_check=1
To an outsider, its looks like the oil market endured a terrible year: low and volatile prices, surging inventories combined with the impact of the credit crunch.
But those very factors have benefited the world’s largest oil trading houses, which are set to reap bumper profits. Bankers estimate the five largest -- Vitol, Glencore, Trafigura, Gunvor, and Mercuria -- are likely to earn between $3.5bn and $4bn in total, making 2009 their best year.
The big traders themselves are more coy. “We had a very good year,” says Marco Dunand, chairman of Mercuria. Pierre Lorinet, chief financial officer at Trafigura, says: “Business has been good.”
The publicity-shy companies dominate oil flows. They jointly trade 15 per cent per cent of the world’s crude and oil products output, equal to the combined oil production of Iran, Iraq, Kuwait, United Arab Emirates, and Venezuela.
Vitol is by far the largest, moving about 5.5m barrels a day -- equivalent to the daily imports of Germany, France, and Italy combined. Those huge quantities of oil mean the trader has more in common with the operations of BP or Shell than with its smaller rivals.
In rare interviews with the *Financial Times*, leading executives from some of the top five traders reveal that this year’s bumper earnings were all secured in the first half, while the second half has been lackluster.
The trading houses have made large sums of money on the back of volatile oil prices, which moved from January’s low of $32.70 to a year high of $82 in October. The volatility allowed traders to arbitrage.
In addition, the oil price curve has being inverted all year, with spot oil trading at hefty discount to forward-dated contracts. The condition, known as contango, allowed traders to arbitrage physical barrels -- buying oil and putting it into storage while, at the same time, selling a forward derivative contract to lock in a profit.
“The contango, which reflected weak demand and the fact that supply was not reduced, effectively, until the middle of the year, gave all the industry an opportunity to make good returns,” says Ian Taylor, Vitol’s chief executive.
The traders stored as much oil as they could onshore, boosting the revenues of storage companies such as Rotterdam-based Vopak or Houston-based Kinder Morgan. When these reservoirs reached their capacity, they moved offshore, using oil tankers.
The difference between the price of West Texas Intermediate oil for immediate delivery and the one-year forward contract -- a key indicator -- widened to a record $21.50 a barrel in January. Since then, the contango has narrowed in oil but it is still open in diesel. Traders believe they will be able to profit from opportunities in both commodities next year. Daniel Jaeggi, co-head of Mercuria, says the market will “probably see contangos persist for a while since stocks are high and [oil demand] growth is likely to be somewhat anaemic.”
The financial crisis, which hit bank’s commodities business, benefited the traders. “Less competition meant higher margins this year and better terms in oil tenders,” says Mr. Lorinet.
The trading houses’ executives warn, nonetheless, against expecting a repetition of this year’s opportunities in 2010. But there will be some self-inflected damage: the five are expanding and unlike previous years, when they were able to gain market share easily because of booming oil demand, this time they will fight against each other for new markets.
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