GLNCY Glencore Plc (PK)

   (FROM THE WALL STREET JOURNAL 3/23/16) 
   By Sarah Kent 

LONDON -- There is one chunk of the energy industry that stands to benefit from today's low oil prices: The traders who make money moving oil, gasoline and other petroleum products around the globe.

Switzerland-based Gunvor Group Ltd. reported record profit for 2015 on Tuesday, even though the privately held company's revenue fell because of low oil prices. The volatile market created new and profitable trading opportunities for Gunvor and other merchants, including Trafigura Group PTE, which said 2015 was its strongest trading year on record, as well as the trading arms of big oil companies such as Royal Dutch Shell PLC.

Trading houses are famously secretive, and the big oil companies give little detail on their trading operations.

Gunvor's privately held rival Vitol Group -- the world's biggest independent oil trader -- reported a drop in its annual revenue on Tuesday in line with the slide in oil prices, but didn't say how it affected profit. Vitol did say it experienced "solid performance across all major business lines" and the volume of oil and fuel it traded rose 13%.

A big drop in oil prices lasting nearly two years has thrown the oil sector into turmoil, hammering profits at companies that get most of their income from producing and selling oil and natural gas. But traders such as Gunvor and Vitol are much more susceptible to variations in market volatility than to the price itself. That is, they can benefit from big price changes regardless of whether that price is going up or down.

Oil traders make money by taking advantage of price discrepancies at different times and in different regions. Though a drop in prices has dented revenue for traders, market fluctuations can create the opportunity to make high-profit trades.

For instance, last year the spot price for oil fell below the cost of crude for later delivery. That allowed large traders with access to storage to make money by stockpiling barrels and selling them in the futures market.

Gunvor's net profit climbed to $1.3 billion last year from $267 million in 2014, boosted by a 10% increase in gross profit at its trading and refining businesses and proceeds from a string of asset sales. Earnings before interest, taxes, depreciation and amortization rose 14% from 2014 to $860 million.

"I think we can say that in 2015 the group did well," Chief Financial Officer Jacques Erni said. "Underlying trading profitability increased and refining did very well and we're very happy with that."

In a statement emailed to journalists, Vitol CEO Ian Taylor noted that current market conditions favor traders, although he said that overall the situation for the sector is challenging.

In December, Trafigura said its oil division recorded a 50% increase in gross earnings in 2015, helping to boost net profit nearly 7% to $1.1 billion. Chief Financial Officer Christophe Salmon said at the time that its core trading business is "completely immune against price risk."

Trading also has helped Shell and BP PLC cushion the impact of weakening prices on the companies' core exploration-and-production business. BP's chief financial officer said in February that 2015 was "a good year for supply and trading. "In its annual report published this month, Shell said that its trading business contributed to a sharp increase in profit in its refining-and-marketing arm.

Glencore PLC said this month that earnings before interest, taxes, depreciation and amortization in its energy market division rose nearly 50% in 2015 to $826 million.

But there still are downsides to traders from an overall slump in commodity prices, because many invested inphysical assets such as mines in recent years.Despite its trading arm's success, Glencore reported a large annual loss, largely attributable to its mine holdings.

Gunvor said its profit last year was dented by impairments it took on coal interests the company holds in the U.S. and South Africa. Trafigura's impairment charges on its nonfinancial assets amounted to $407 million last year.

(END) Dow Jones Newswires

March 23, 2016 02:47 ET (06:47 GMT)

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