How big oil is profiting from the slump

Although better known for their oil fields, refineries, and petrol stations, BP Plc, Royal Dutch Shell Plc and Total SA are also the world's biggest oil traders, handling enough crude and refined products every day to meet the consumption of Japan, India, Germany, France, Italy, Spain and the Netherlands. The trio's sway in commodities trading, largely unknown outside the industry, is set to pay off in 2015 as the bear market allows traders to generate higher returns by storing cheap oil today to sell at higher prices later and using lower prices to make more bets with the same capital. "Volatility has increased dramatically over the last three or four months," said Mike Conway, the head of Shell's trading and supply business. "Parts of your business that are volatility driven are probably doing pretty well." While companies are shy about revealing the financial results from their trading business, a look at the last major bear market provides clues to the opportunity they have today. In the first quarter of 2009, BP said it made $500 million above its normal level of profits from trading. That means that trading accounted for, at the very least, 20 percent of BP's adjusted income that quarter of $2.38 billion. From dealing floors that resemble the operations of Wall Street banks in cities including Geneva, London, Houston, Chicago and Singapore, oil trading could provide BP, Shell and Total with an edge over U.S. rivals Exxon Mobil Corp. and Chevron Corp., which sell their own production, but largely eschew pure trading as a means of generating profits, Bloomberg reports. European Trio Few other publicly-listed oil companies trade at the scale of the European trio, although Statoil ASA, Eni SpA and OAO Lukoil all have trading desks. The amount of crude oil and fuel traded each day by the three European majors together dwarf the combined size of independent traders such as Vitol, Glencore, Trafigura, Mercuria, Gunvor, based on company statements and people familiar with the market. "The trading arms of the oil producers have the opportunity to monetize significant opportunities this year," said Roland Rechtsteiner, a partner at consultants Oliver Wyman, who specializes in advising commodity trading businesses. The last time that a European oil major disclosed the profitability of its trading operation was a decade ago, when BP said it made $2.97 billions in 2005, or about 10 percent of the company's total earnings that year. Without giving away concrete financial results, the companies have indicated income from trading already rose in the fourth quarter of 2014 as oil prices fell.

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