Vitol, the world’s largest independent oil trader, saw first-half profits jump almost 50 per cent after asset sales helped boost flat-lining earnings from its core operations, as market conditions have gotten tougher for energy dealers.
The trading house, which is led by London-based chief executive Ian Taylor and his top lieutenants, reported net profit of $818.9m for the first six months of 2017, up from $546.4m a year earlier, according to a copy of the privately held group’s half-year accounts seen by the Financial Times.
The results suggest, however, that the world’s top energy traders are having to run harder to stand still.
The group’s operating profits from its core energy trading business came in almost unchanged at $548.9m compared to $547m last year, despite the company increasing the number of barrels of crude and refined products it trades to more than 7m barrels a day — the equivalent of roughly one in every 14 barrels of oil consumed globally.
Oil traders operate on razor-thin margins and have to turn vast volumes of crude and fuel to make significant profits. Nevertheless they have enjoyed some of the strongest trading conditions in decades during oil’s slump from above $100 a barrel in 2014 to below $30 early last year.
Operating margins are being squeezed as oil prices recover, however, with Vitol’s gross margins across its businesses — including oil, coal, power and carbon trading — dropping to 1.2 per cent from 1.4 per cent.
Market conditions are unlikely to have improved in the second half of the year, with Brent crude, the international oil benchmark, hitting a two-year high above $59 a barrel this week. Brent has also moved into a market structure known as backwardation, where contracts for delivery in the future are cheaper than in the spot market.
The opposite structure, known as contango, had prevailed for 2015 and 2016, allowing traders to earn near-record profits from storing oil. Low prices also saw them boost business by assisting cash-strapped producers, including countries like Kazakhstan and the autonomous Iraqi Kurdistan region.
Vitol’s oil trading business had net sales of $69.4bn in the first six months, the accounts showed, up from $56.2bn last year, largely driven by higher oil prices.
Natural gas and LPG trading was up slightly at $9.9bn, while coal trading jumped to $671m from $422m.
The 49.9 per cent increase in net profit came as the company earned $321.6m from asset disposals, including selling a 50 per cent stake in its oil storage and terminals business to US-based Buckeye Partners.
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