Oil trader Vitol hit by profit drop in tough markets
Decline follows blockbuster 2016 as price rebound makes trading harder
Vitol, the world’s biggest independent oil trader, suffered a drop in profits last year, as tough market conditions made it more difficult to make money from storing cheap barrels of crude and selling them later.
The privately owned company posted net income of $1.5bn in the year to December, down from more than $2bn in 2016, which was one of its best years on record, according to people familiar with the results.
Vitol, which does not make its full financial information public, declined to comment.
Stripping out $300m of gains from assets sales, underlying net income was $1.2bn, against $1.6bn in 2016, the people said.
The results show how the recovery in oil prices to around $70 a barrel had made it more difficult for groups like Vitol to make money from storing cheap barrels of crude and selling them later at a higher price.
These so-called “cash-and-carry” trades helped the industry deliver bumper profits in 2015 and 2016, making it one of the few beneficiaries of the oil price crash.
But a shift to a market structure called backwardation — where contracts for spot delivery are more expensive than those in the future — has crimped earnings.
In December, Trafigura, the world’s third-biggest oil trader, said its oil and petroleum products business had posted a 22 per cent decline in gross profits in the year to September, although this had been offset by a strong performance from its metals unit.
At the FT Commodities Global Summit in Lausanne last week, Vitol’s chairman Ian Taylor acknowledged that 2017 had been a tougher year for the company, without providing further details.
“It’s probably very good for the world that the oil price is in a very nice sweet spot. However, that’s not very good for trading,” he said in his first interview since stepping down as chief executive this month.
During his more than 30 years at the company, Mr Taylor has transformed Vitol from a small Dutch fuel trader into a global behemoth trading more than 7m barrels of crude and products a day — enough to supply the fuel needs of the UK, Germany, Spain and France combined.
He is being replaced by Russell Hardy, the group’s head of operations across Europe, the Middle East and Africa.
Mr Taylor said the company’s strategy was unlikely to change under Mr Hardy. Unlike rivals Glencore and Trafigura, which also trade metals, Vitol is focused on energy markets.
For the first time in years, buying and selling metals is proving more attractive than shifting barrels of oil — a reversal of the trend for much of this decade. But Mr Taylor said Vitol had no plans to start trading aluminium, copper or zinc.
“You need proper scale, you can’t dabble in it,” he said, referring to metals trading. “I am afraid that bus has left the station and sadly we are not on it. We will just have to accept we are not on it and have to work twice as hard to make some money out of oil or gas.”
Looking ahead to 2018, Mr Taylor said the sale of stakes in refining and service station businesses would boost earnings.
Vitol and private equity company Carlyle recently announced plans for a stock market listing of Varo Energy, their European refiner and petrol station operator.
That sale could be followed by an initial public offering of Vivo Energy, an African fuel service station business, and possibly Viva Energy Australia, which acquired Royal Dutch Shell’s Australian oil refining and marketing business in 2014.