Vitol Sees Record Oil Volumes as Market `Favors' Traders

  • Oil trader handled more than 6 million barrels a day in 2015
  • Vitol said to post 9-month profit up 59% from a year earlier

Vitol Group, the world’s largest independent oil trader, said it handled a record volume of 6 million barrels a day of crude and refined products last year as it benefited from a market that “favors” traders.

At a time when oil-rich countries are suffering and major energy companies are retrenching, the closely-held trader’s net income was $1.25 billion in the first nine months of last year, up 59 percent from the same period of 2014, according to a person familiar with the company’s accounts.

The financial performance until the end of September and the record full-year trading volumes suggest Vitol is heading for one of its best years ever. The company, headed by Chief Executive Officer Ian Taylor, posted a record profit of $2.28 billion in 2009, according to data compiled by Bloomberg. The current market “favors a physical trader,” but is challenging for the wider industry, Taylor said.

“Whilst opportunities in the physical market continue to exist, we are increasingly vigilant in respect of counterparty risk as current price levels will inevitably test some market participants,” Taylor said in a statement on Tuesday. “The absolute price levels and market volatility are causes for caution” as the risk of defaults increases, he said.

Increased Volatility

While Vitol only releases publicly its traded volumes and revenue, it does provide financial information to its lenders and some other groups. The person familiar with the accounts asked not to be named, citing confidentiality clauses.

Oil traders such as Vitol and rivals Trafigura Group Ltd Pte, Glencore Plc, Gunvor Group Ltd., Mercuria Energy Group Ltd. and Castleton Commodities International LLC are profiting from the increase in price volatility. They are also filling storage to take advantage of contango -- a situation where future prices are higher than current levels, allowing investors to buy oil cheap, store it in tanks and lock in a profit for a later sale using derivatives.

In an interview in February, Taylor said that Vitol, which celebrates its 50th anniversary this year, would report net income for 2015 above the $1.35 billion it earned in 2014. However, he said the company wouldn’t match the record of 2009. The company, which is owned by its senior staff, planned to take writedowns in its exploration and production business and make provisions against customers defaulting on contracts, he said.

Cautious Approach

Vitol’s traded volumes of crude and oil products rose 13 percent from a year earlier to 303 million metric tons, equal to about 6.2 million barrels a day. That’s enough to meet the combined oil consumption of Germany, France, Italy and Spain. Revenue, which rises and falls in parallel to commodity prices, plunged 38 percent to $168 billion as oil fell.

The trading house, which is formally incorporated in Rotterdam but has its main operations in Geneva, London, Singapore and Houston, has experienced strong growth over the last 20 years on the back of rising oil trade, large price swings and, more recently, investment in storage and refining. In 1995, Vitol earned just $20 million.

Taylor said the current environment "vindicates the extremely cautious approach we have long taken towards risk and debt."

While the company’s refinery assets performed well in 2015, slowing global growth and a rebalancing of the Chinese economy are “likely to impact parts of the portfolio and we expect a slowdown in the rate of demand in some energy markets,” Taylor said. Stockpiles of crude and products will continue to build and weigh upon the market, he added.

Ship journeys conducted by Vitol rose 9.5 percent to 6,629 during the year. Natural gas sales fell 43 percent to 683 terawatt hours, while power sales declined 13 percent to 102 terawatt hours and coal sales slipped 41 percent to 20 million tons, the company said.

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