May 1 (Bloomberg) -- BP Plc, Royal Dutch Shell Plc and Hess Corp. are among oil companies whose first-quarter earnings were boosted by storing crude in tankers in anticipation of higher prices.

Since at least November, oil traders have benefited from the so-called contango market, where crude contracts for delivery in the future are more expensive than near-term supply.

BP’s supply and trading operations made “very strong contributions” to the company’s performance, Chief Financial Officer Byron Grote said earlier this week. Trading profit was about $500 million higher “than what we would consider the normal range of quarterly volatility,” he said.

Traders are storing 100 million barrels of oil at sea, enough to supply Europe for five days, Frontline Ltd., the world’s largest supertanker operator, said April 23. Provided they can secure storage and financing for less than the difference between near-term and future prices, they can lock in a profit on the trade.

The price differential between the two most active contracts on the New York Mercantile Exchange widened to as much as $8.19 a barrel in the quarter.

The opportunity to benefit from the contango trade is unlikely to persist into subsequent quarters as the price difference narrows, Grote said.

‘Flatter Structure’

“We’d actually expect it probably to be drawn off in the course of the second quarter, since we’ve now seen the steep contango structure that we had in the first quarter return to a flatter structure,” he added.

Valero Energy Corp., the largest U.S. refiner, reported first-quarter profit of 59 cents a share, 9 cents better than the average estimate, on April 28.

“They had $150 million of profit related to trading,” said Philip Weiss, an analyst at Argus Research Corp. in New York. “The market was in contango, which means the forward price is higher than the spot price. They were basically paid for storing oil.”

Shell, Europe’s biggest oil company, confirmed it also took advantage of the contango market, without giving any figures.

“We have used some working capital actually to drive trading during the first quarter, and to a certain extent also into the second quarter,” Shell’s Chief Financial Officer Peter Voser told analysts on a conference call on April 29.

Estimating trading profit “is exceedingly difficult,” said Mark Gilman, an analyst at Benchmark Co. in New York. “Especially since there’s no baseline quantification typically provided by anybody.”

Winning Bets

For Hess, the fifth-largest U.S. oil producer, winning bets by its trading desk during the first quarter helped cushion the blow from $5 million in weekly losses on oil and natural-gas production.

The New York-based company’s traders generated a $19 million profit in the January-to-March period, compared with a $13 million loss a year earlier, Chief Financial Officer John Rielly said during an April 29 conference call with investors and analysts. It was Hess’s best trading result since the second quarter of 2007, when the unit had $35 million in profit.

Marathon Oil Corp., the fourth-largest U.S. oil company, also benefited from the trade.

“A very small amount of crude was put in tankage for contango purposes,” Garry L. Peiffer, senior vice president for finance and commercial services, at the company’s Refining, Marketing and Transportation division, told analysts and investors yesterday. The company did not say how much oil it had in storage.

In contrast, Chevron Corp., the second-largest U.S. oil company said a scale-back in trading contributed to a 99 percent drop in its U.S. oil and natural-gas profits.

Chevron reduced its use of derivative contracts such as futures contracts and swaps to lock in margins by an undisclosed amount during the first quarter, spokesman Jim Aleveras said during a conference call with investors and analysts.

To contact the reporters on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net; Fred Pals in Amsterdam at fpals@blomberg.net

Last Updated: May 1, 2009 12:02 EDT