The World’s Biggest Crude Oil Traders Enjoying Bear Market

Posted by: : Paul EbelingPosted on: March 12, 2015 The World's Biggest Crude Oil Traders Enjoying Bear Market
 

The World’s Biggest Crude Oil Traders Enjoying Bear Market

$BP, $RDS-A, $TOT, $XOM, $CVX, $OIL

BP Plc, (NYSE:BP) Royal Dutch Shell Plc (NYSE:RDS-A), and Total SA (NYSE:TOT) are the world’s biggest oil traders, handling enough Crude Oil, and refined products every day to meet the consumption of Japan, India, Germany, France, Italy, Spain and the Netherlands.

The 3 lead the way in energy commodities trading, this is not known outside the industry.

The Bear Market in Crude Oil allows traders to generate higher returns by storing cheap Oil today to sell at higher prices later and using lower prices to make more bets with the same capital.

“Volatility has increased dramatically over the last 3 or 4 months,” said the head of Shell’s trading and supply business. “Parts of your business that are volatility driven are probably doing pretty well.”

Companies are reserved about revealing the financial results from their trading business, a look at the last major Bear Market in Crude Oil provides clues to the opportunity they have now.

In Q-1 of Y 2009, BP said it made $500-M above its normal level of profits from trading. That means that trading accounted for about 20% of BP’s adjusted income of $2.38-B in that Quarter.

Crude Oil trading provides BP, Shell and Total with an edge over US rivals Exxon Mobil Corp. (NYSE:XOM), and Chevron Corp.(NYSE:CVX), which sell their own production, but bypasses pure trading as a means of generating profits.

Few other publicly-listed Crude Oil companies trade at the scale of the European trio, although Statoil ASA, Eni SpA and OAO Lukoil all have trading desks.

The amount of Crude Oil and motor fuel traded each day by the three European majors together dwarf the combined size of independent traders such as Vitol, Glencore, Trafigura, Mercuria, Gunvor, based on company statements and people familiar with the market.

Without giving away solid financial results, the companies have indicated income from trading already rose in Q-4 of Y 2014 as Crude Oil prices fell.

BP and Shell declined to comment, Total did not respond to requests for comment.

Fitch Ratings anticipates that oil traders “are likely to report healthy earnings in Y 2015 as they benefit from volatile oil prices.”

Several factors explain the expected rise in income.

1. After years of steady prices, volatility has surged, allowing traders to make more bets about the direction of the market.

2. Oversupply has pushed Crude Oil prices into a structure called “contango”  a relatively rare situation where forward prices are higher than current prices, allowing traders to buy Crude Oil cheap, store the commodity and sell later.

3. Lower prices mean it takes less capital to make trades.

In addition to crude oil, BP and its rivals trade almost every refined product, from gasoline to fuel oil, plus electricity, petrochemicals, natural gas, currencies and even metals. On top of their own production from oil fields and refineries, the trio buys commodities from third parties.

The 3 major companies also make large bets in the derivatives commodities markets. Such is the scale of BP and Shell in the financial market that both are registered swap dealers in the US under the Dodd-Frank act. Together with agricultural trader Cargill Inc., they are the only non-financial firms among nearly 50 banks, insurers, brokers and others registered as swap dealers.

BP said on its website that its global Crude Oil trading activity generates a huge amount of market intelligence that other companies do not have. “This gives us a clear advantage in converting up-to-the-minute data into effective market calls,” it says.

BP employs in its Integrated Supply and Trading business, as the trading arm is known, about 3,000 people in trading floors in London, Chicago, Singapore and several other cities.

Total Oil Trading SA, or Totsa, employs 500 in hubs in Geneva, Houston and Singapore.

Shell International Trading and Shipping Company, known in the industry as Stasco, does not disclose the number of employees.

The 3 trade at least 15-M BPD of Crude and Oil refined products, according to industry estimates.

HeffX-LTN Analysis for OIL: Overall Short Intermediate Long
Bearish (-0.26) Neutral (-0.15) Bearish (-0.35) Bearish (-0.29)

Stay tuned…

HeffX-LTN

Paul Ebeling

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Paul Ebeling

Pattern Recognition Analyst, equities, commodities, forex
Paul Ebeling is best known for his work as writer and publisher of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly-regarded, weekly financial market letter, where he enjoys an international audience among opinion makers, business leaders, and respected organizations. Something of a pioneer in online stock market and commodities discussion and analysis, Ebeling has been online since 1994. He has studied and worked in the global financial and stock markets since 1984.

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