BIG OIL'S SECRETIVE TRADING ARMS ARE HAVING AN EXTRAORDINARY YEAR

Meet the corporate gamblers who never waste a good energy crisis

- The Economist

Oil majors have two ways to make big money during an energy shock. One is to sell the hydrocarbons they pump and refine themselves. The other is to buy barrels that others produce and flog them to whoever wants them most.

The third Gulf war has demonstrated just how important the latter has become as a source of profit for the industry—particularly in Europe.

Trading used to be the majors’ dirty little secret for topping up returns. It is not little anymore. The volume of hydrocarbons traded by BP, Shell and TotalEnergies—equivalent to 40-50m barrels of oil per day—is five to ten times what they produce. Nor is the contribution to their profitability a rounding error. Our calculations suggest the trio’s trading arms could be on course to boost their average return on capital by nearly a third or more this year.

Yet secretive these activities remain. The majors disclose plenty about their production and distribution businesses. But information about their trading arms is, in effect, classified. Opacity helps protect their competitive edge. Trading profits alone explain why European majors, whose valuations have long trailed those of their American cousins, have outperformed Exxon and Chevron since the end of February. To understand how they mint so much money—and whether it can last—The Economist spoke to a range of industry insiders. Our findings indicate that the golden geese still have eggs to lay. But foxy competitors are circling.