Crude Market Volatility Boosts Profits at Trafigura
Reprinted from the FT 12/06/2020
Coronavirus pandemic helps energy trader post record performance for oil unit Trafigura claimed to have correctly forecast the sharp decline in oil demand due to the health crisis. Trafigura, one of the world’s largest commodity traders, has emerged as a winner from the sharp decline in crude prices caused by the coronavirus pandemic, reporting a record half-year for its oil and refined fuels division. The company, which is run from Geneva, said on Thursday the 27 percent jump in its interim profits was driven by “significant volatility and dislocations in the global market”. It claimed to have correctly forecast the sharp decline in oil demand due to the health crisis. “Our market intelligence on the impact of Covid-19 and of the decisions by Opec and other oil producers on demand and supply, enabled us to act efficiently and effectively,” said Christophe Salmon, chief financial officer. “This superior market understanding, combined with our physical infrastructure and our supply chain management capacity, were key in balancing the oil market during these unprecedented times,” he added.
The performance of Trafigura’s oil business in the early stages of the price collapse contrasts with that of some of its rivals.
Vitol, the world’s largest independent oil trader, suffered a sharp decline in net income in the first three months of this year due to the rapid spread of the virus. However, its trading profits are said to have improved in April and May.
Gunvor, another big energy trader, also had a tough first quarter.
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Oil prices fell from near $70 a barrel to below $20 in April, with US benchmark West Texas Intermediate turning negative at one stage as plummeting global demand threatened to overwhelm storage facilities.
Trafigura’s results included the last three months of 2019 when big oil traders benefited from tighter physical crude markets. Higher trading volumes also led to a strong contribution from its metals and minerals division. However, the demand shock in energy markets due to coronavirus led to write-downs on some of Trafigura’s investments and stakes in physical infrastructure.
Those included an impairment of $287m on the value of its stake in its India-based Nayara oil refining venture with Russia’s Rosneft.
Its shareholding of Puma Energy, a debt-laden fuel retailer, was also written down by $293m. In the six months to March, Trafigura reported a net income of $542m, up from $426m in the same period a year ago, from revenue of $83bn. Gross profit margins across the oil, metals, and minerals businesses more than doubled to 3.8 percent from 1.7 percent. Trafigura’s stake in Puma had risen to 55.5 percent from 49 percent following a complex deal involving a share sale by a retired Angolan general. However, Trafigura said the transaction did not alter its existing shareholder agreement with Puma and it would not consolidate its results. Puma reported a loss of $25m in the first quarter and net debt of $1.6bn.
The heightened volatility in markets could be seen in the company’s ‘value at risk’ (VaR), which rose sharply during the reporting period. Trafigura’s one day VaR, or the most the company estimates it could lose in a day, more than doubled to $56.4m from $24.1m in 2019. It averaged more than $18.1m, up from $11.6m.