Strong demand for oil storage and higher trading volumes are buffering market giants such as BP, Shell and Total from price plunges caused by the global glut.
While companies are typically cagey about their trading profits, history suggests the bear market has some upside for companies better known for their production and retail arms.
Stratton Street Capital chief investment officer Andy Seaman said he expected a “huge uptick”, given that trading accounted for at least 20 per cent of BP’s adjusted first-quarter profit of $US2.38 billion in the last bear market in 2009.
“With volatility increasing dramatically over the last few months, [BP, Shell and Total’s] commodity trading desks have seen big upswings in volume and profits,” he said.
The amount of crude oil and fuel traded each day by the three European majors together dwarfed the combined size of independent traders such as Vitol, Glencore, Trafigura, Mercuria, and Gunvor, Bloomberg said.
The US benchmark West Texas Intermediate was trading at $US46.91 ($59.77) a barrel in Asian trade on Wednesday, down more than 50 per cent from this time last year, while Brent crude oil fetched $US55.55, down 47 per cent.
But shares in Shell and BP have had much more modest falls. BP’s London stock was trading at £4.48 ($8.52) on Tuesday, down 14 per cent from a high in June last year. Shell’s price stood at £24.50, down 14 per cent from its peak in September.
Mr Seaman said expectations of higher future prices for oil were fuelling storage demand, while the price turbulence meant companies could bet on a greater variety of market positions.
WTI and Brent have both experienced volatile trade since the end of January, with Brent having particularly wild swings of 30 per cent from bottom to top.
Earlier this month, Mike Conway, Shell’s trading and supply business head, acknowledged volatility had risen “dramatically” in the past four months.
“Parts of your business that are volatility-driven are probably doing pretty well,” Mr Conway said.
Commodity analyst Ed Yardeni, president of Yardeni Research, said geopolitical factors could worsen oversupply, as the US maintained high production volume in the face of steep price cuts from Saudi Arabia.
“Despite the invasion by ISIS forces, Iraqi oil production remained high at 3.4 million barrels per day during February, helping to offset the drop in Iranian output since early 2012,” Dr Yardeni said.
“The big concern is that if Iran agrees to a nuclear deal with the US, then the sanctions will be lifted. If so, there could be another one million barrels per day, flooding the flooded global oil market.”