Stay informed with free updates
Simply sign up to the Energy sector myFT Digest — delivered directly to your inbox.
Commodity trading groups lost billions of dollars at the start of the Iran war after being wrongfooted by bets on falling energy prices, according to new analysis by consultancy Oliver Wyman.
While trading houses typically profit in times of chaos and volatility, the start of the conflict six weeks ago — which trapped more than 100 fuel tankers in the Gulf — caught many on the wrong side of the sudden surge in oil prices.
Those early losses ran into the “billions of dollars”, said Alexander Franke, Oliver Wyman’s head of risk and trading.
“For most participants the situation was a surprise,” said Franke. “Before the war started, there was a strong conviction in the market that prices would fall, and because of the war, they spiked.”
The FT has previously reported that Vitol, Trafigura and Mercuria all nursed losses in the early days of the war, although some of these have since been reversed.
Oil traders with cargoes on the water also faced outsized margin calls when Brent crude futures jumped, because a short position is typically taken as a hedge against a physical cargo. Margin calls do not represent a loss but do require a substantial cash outlay.
Commodity traders were hit not only by short positions on the market, but also because of the huge cost of replacing fuel cargoes that were stranded in the Gulf, according to industry executives.
Traders and oil companies that had ships being loaded in the Gulf would have already agreed to sell those cargoes at future dates for agreed prices, forcing them to replace the cargoes at much higher prices when the war trapped the original cargoes.
These losses from physical shipments were also likely to be in the “billions” of dollars, said Franke.
Commodity trading houses have previously thrived during periods of conflict, reporting record profits in 2022 amid the energy crisis triggered by Russia’s full-blown invasion of Ukraine.
The current conditions of uncertainty and high volatility in commodity prices will “drive an increase in trading margins”, according to Franke, although he said it was too soon to say whether profits this year would match the levels of 2022.
The biggest trading houses have had to increase their access to working capital to handle the greater volatility caused by the energy crisis. Vitol and Trafigura have each secured $3bn in additional credit facilities, while Gunvor has secured $1.5bn.
Trading house earnings declined slightly last year to $92bn, their lowest level since 2021, according to the Oliver Wyman report. That compares with peak earnings of $115bn in 2022, according to the research.
One bright spot last year was in metals trading, where profits rose 20 per cent, while profits from oil desks declined 15 per cent, according to the report. Oil prices experienced unusually low volatility last year.
The report also found that firms’ “seat cost”, which reflects the cost of providing the terminals, data and technology support for a single trader, is up by more than 30 per cent since 2021.
Future baseline annual earnings for the industry are likely to be between $90bn and $110bn, the authors estimate, excluding the impact of geopolitical events.
“If you look at the past couple of years, it seems like we’ve had a lot of once-in-a-lifetime events,” said Marc Zimmerlin, partner at Oliver Wyman and one of the report’s authors. “Obviously that’s not part of anybody’s business planning.”
