Vitol warns oil demand to peak within 15 years
Forecast comes after tripling of second-half profit at world’s biggest independent energy trader
Vitol, the world’s biggest independent energy trader, said it expected oil demand to peak within 15 years, joining a chorus of warnings that the industry needed to prepare for a shift towards cleaner fuels.
Russell Hardy, chief executive of the privately held company since last year, said on Tuesday that, while the world was not ready to move to renewable energy without denting economic growth, there was a clear inflection point ahead.
“We anticipate that oil demand will continue to grow for the next 15 years, even with a marked increase in the sales of electric vehicles,” Mr Hardy said. “But that demand growth will begin to be impacted thereafter.”
The admission is among the first from a big trading house that has built its multibillion-dollar valuation on the rapid pace of oil demand growth over the past two decades. The comments are the most detailed yet from a trading company whose views are closely tracked in the industry.
The projection, made as the company announced its trading volumes for 2018, comes at a time when oil companies are split over whether environmental policies and attempts to limit climate change will cap more than 150 years of almost untrammelled growth in oil consumption.
Vitol said on Tuesday that it traded 7.4m barrels a day of crude and refined products last year, up slightly from levels just above 7m in 2017.
That activity gives the company huge sway in the 100m b/d global oil market. Its daily global trading volumes are the equivalent of enough to supply all of France, Germany and Spain’s oil consumption combined.
Mr Hardy said Vitol was increasing its focus on cleaner fuels and looking at new technologies, highlighting a joint-venture that has constructed the UK’s largest battery park portfolio and plans to invest in large-scale wind power generation across Europe.
“We are cognisant of the increasing move to alternative sources of energy and are considering how our skillsets can best be deployed in these new areas,” he said, adding that the company was “investing in new and established technologies which may form an important part of the energy transition”.
Still, Vitol has not lost its knack for oil trading. Though the privately held company does not publish its full results, people who have seen its 2018 earnings told the Financial Times the company was one of the big winners from the volatility that roiled oil markets in the second half of 2018, posting a threefold increase in underlying profit compared with the first six months of the year.
Net income excluding one-off gains was around $750m in the second half of the year to December, compared with $250m in the first six months when the industry was buffeted by unfavourable market conditions.
For the full year, Vitol recorded net income of $1.7bn, excluding a $200m hit for currency and depreciation, according to the people familiar with the earnings. The result was boosted by $700m of one-off gains mainly from the stock market flotation of two retail businesses.
In June the company and its partners raised almost $2bn from the listing of its Australian refining and fuels business, marking one of the most successful investments in the company’s 50-plus-year history.
Vitol’s underlying net income for the full year dropped to $1bn from $1.2bn a year earlier, weighed down by a weak first half and margin pressure across the commodity trading industry in the face of fierce competition.
The results suggest the oil trading giant was well positioned for the sell-off and volatility that wrongfooted many hedge funds and rival traders at the end of last year.
Ian Taylor, the company’s chairman and former chief executive, said in October that the market was well supplied and that he expected prices to fall, despite crude having just hit a four-year high above $86 a barrel.
Oil went on to have one of its biggest quarterly drops on record, bottoming out below $50 a barrel at the end of December and leaving many traders nursing heavy losses.