• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 2 days GREEN NEW DEAL = BLIZZARD OF LIES
  • 2 days The United States produced more crude oil than any nation, at any time.
  • 8 days e-truck insanity
  • 3 days How Far Have We Really Gotten With Alternative Energy
  • 7 days Oil Stocks, Market Direction, Bitcoin, Minerals, Gold, Silver - Technical Trading <--- Chris Vermeulen & Gareth Soloway weigh in
  • 6 days James Corbett Interviews Irina Slav of OILPRICE.COM - "Burn, Hollywood, Burn!" - The Corbett Report
  • 6 days The European Union is exceptional in its political divide. Examples are apparent in Hungary, Slovakia, Sweden, Netherlands, Belarus, Ireland, etc.
  • 8 days Biden's $2 trillion Plan for Insfrastructure and Jobs
  • 8 days "What’s In Store For Europe In 2023?" By the CIA (aka RFE/RL as a ruse to deceive readers)
  • 11 days Bankruptcy in the Industry
Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

More Info

Premium Content

Record Profits Bring $120 Billion Cash Bonanza To Commodity Traders

  • The total global commodity trading gross margin jumped from below $40 billion in 2018 to a record-high of nearly $150 billion in 2022.
  • Commodity traders have amassed up to $120 billion in cash over several successive years of record performance and profits.
  • The commodity trading industry currently has the means to reinvest strategically in long-term deals and strategic decisions.
Traders

Commodity traders have amassed up to $120 billion in cash over several successive years of record performance and profits. The industry's new guard of executives is now sitting on huge amounts of cash to reinvest and turn the top trading houses from market brokers to industry shapers.

That's according to a recent report by consultancy Oliver Wyman, which sees the trading industry's new executives as the ones that could use the cash bonanza to invest in evolving and betting on long-term strategies beyond making huge profits in volatile commodity markets.

Cash Windfall

The cash bonanza has been plentiful over the past half-decade, with a sustained trend of growth in overall trading margins since 2018, per Oliver Wyman's proprietary data and analysis.

The total global commodity trading gross margin jumped from below $40 billion in 2018 to a record-high of nearly $150 billion in 2022, when energy market volatility sent profits at traders soaring. With the energy crisis in late 2021 and the highly volatile 2022 energy markets, gas and power trading even eclipsed oil trading as the segment bringing in the highest share of profits for the industry. 

When commodity markets settled and supply chains stabilized last year, the gross margin declined to an estimated $105 billion in 2023. But this is still the second-highest level of industry profits ever, Oliver Wyman's analysis found.

As commodity traders have been retaining a significant portion of profits as cash on their balance sheets between 2018 and 2023, the amount of earnings retained is likely about $70 billion to $120 billion for the five-year period, according to Oliver Wyman's analysis. Related: The Gas Find That Could Transform Europe’s Energy Future

The world's biggest independent oil traders alone have earned record-high profits in the past two years amid market volatility and a rebound in the demand for energy commodities.  

The four largest traders—privately-held Vitol Group, Trafigura, Gunvor, and Mercuria—have also paid record dividends to their employee shareholders, and even after these record payouts, the trading houses are now sitting on nearly $60 billion in combined equity, a Reuters analysis showed last month.

For example, Vitol Group, the world's biggest independent oil trader, booked a record-high profit of $15.1 billion for 2022, thanks to the highly volatile energy markets after the Russian invasion of Ukraine. Even after the record payouts to employee shareholders, Vitol has raised its equity to $26 billion, per its non-public balance sheet seen by Reuters.

Trafigura, for its part, paid its highest-ever dividends for its 2022/2023 financial year after posting another record-high profit amid volatile markets.

Due to strong profitability, group equity increased by 9% to a record $16.5 billion, up from $15 billion, and has more than doubled since 2020, "providing a solid base for further growth," Trafigura said.

'New Guard' Could Steer Commodity Traders To Energy Market Shapers

The commodity trading industry currently has the means to reinvest strategically in long-term deals and strategic decisions, including cooperation with governments to ensure the security of energy supply.

In this closer collaboration between governments and the biggest commodity trading houses, "the job of a trader transitions from a market broker to an investor reshaping supply chains," Oliver Wyman says.

As commodity traders have announced in recent years management changes at the executive C-suite level, the new management teams could use the windfall to become long-term investors in the global energy markets, according to Oliver Wyman.

"Since February 2022, at least 20 senior executives in commodity trading firms have stepped into new positions, including the roles of chief executive officer, chief financial officer, and heads of trading divisions," the consultants wrote. 

Currently, three-fourths of senior executives in the commodity trading industry have tenures below the average tenure of their predecessors five years ago.  

Now it's up to the 'new guard' to decide how much cash to reinvest and how to reinvest it.

ADVERTISEMENT

One winner move could be to invest in assets, "which gives traders greater optionality and influence over the commodities they trade," Oliver Wyman said.

Some of the top commodity traders have already made deals for assets in Europe. Gunvor, for example, said in December that it would buy from BP a majority 75% stake in Bahía De Bizkaia Electricidad S.L., a 785-MW combined cycle power plant in Bilbao, Spain.  

Last month, Vitol made a step toward buying 35% of the Saras refinery in Italy after reaching a deal with members of the Moratti family. Completion of the transaction is exclusively subject to obtaining the required regulatory approvals, including clearances under the EU foreign subsidies regulation, the EU antitrust regulation, and the Golden Power framework.

"As new players, including several oil majors, national oil companies, small integrated oil and gas companies, and hedge funds, enter the market on the back of significant value created in the last two years, the need for trading firms to evolve becomes more critical than ever before," the authors of the Oliver Wyman report wrote. 

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News