European Oil Majors Report "Exceptional" Trading Profits

By Tsvetana Paraskova of OilPrice.com

• All three of Europe’s largest oil majors have reported their highest quarterly earnings in years, with their trading arms playing a key role.

• While none of Europe’s oil majors report their trading performance separately, all three admitted that their performance had been exceptional.

• Analysts believe that each of the companies will have made billions of dollars from trading, taking advantage of soaring volatility

Europe’s top oil firms reported blowout earnings for the first quarter as oil and gas prices spiked with the European energy crisis and the Russian invasion of Ukraine.   All three major producers and traders—Shell, BP, and TotalEnergies—posted their highest quarterly earnings in years, hailing “outperforming” and “exceptional” trading results for contributing to the high earnings, together with spiking oil and natural gas prices and stronger refinery margins.  

While it’s no secret that trading in volatile markets makes a lot of profits for trading firms and trading divisions, none of the three big European oil and gas majors have a separate “trading result” item on their balance sheets. This leaves the market and analysts guesstimating just how profitable oil and gas trading is, especially in exceptional market circumstances such as the ones we are experiencing now.  

The top executives at BP, Shell, and TotalEnergies shed some light on the trading business in the earnings calls, but none went on record to quantify the earnings from crude oil, refined products, or liquefied natural gas (LNG) trading. 

Analysts, however, have estimated that trading profits for this past quarter alone were in terms of billions of U.S. dollars. 

“Exceptional Trading Result”

BP, for example, reported last week a quarterly profit that was more than double last year’s first quarter— far exceeding analyst expectations, thanks to high oil prices and what it described as an “exceptional” oil and gas trading business. 

The strong first-quarter earnings were “driven by exceptional oil and gas trading, higher oil realizations and a stronger refining result, partly offset by the absence of Rosneft from the first quarter underlying result,” BP said. The firm hailed “an exceptional gas marketing and trading result, albeit lower than in 2021.” In its customers & products division, BP noted a return to profit in refining and “an exceptional oil trading result.”  

BP’s combined refining and trading adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) surged to over $2 billion in the first quarter, from $400 million for Q4 2021 and $419 million for the same period last year, the earnings release showed. But the company—like the other majors—isn’t breaking down the results from trading only, nor does it say how much it is earning from oil and/or gas trading. 

BP likely made $1.2 billion from gas trading and another $400 million from oil trading in the first quarter, Oswald Clint at Bernstein has estimated. 

“BP, Shell and Total have an edge and it is unique to these three companies,” Clint told the Financial Times, commenting on the European majors’ trading divisions and performance. 

Reporting its highest profit since 2008, Shell said that “Adjusted Earnings and Adjusted EBITDA benefited from higher trading and optimisation margins for gas and power, due to exceptional market environment, particularly in Europe, as well as seasonality.” 

TotalEnergies noted the “outperformance by its oil trading activities” and “very good performance of the gas, LNG and electricity trading activities.” 

Outperformance in crude oil and petroleum products trading activities helped TotalEnergies see a jump in its adjusted net operating income for the Refining and Chemicals segment—that income surged to $1.12 billion for Q1 2022 from $243 million for the first quarter of 2021. 

“It Is More About Volatility”

In the conference calls following the Q1 results, the oil majors’ top executives did not reveal specific trading numbers, either. Yet, BP’s chief financial officer Murray Auchincloss did say that the exceptional volatility in the markets in the first quarter played a large part in the trading result. 

“Generally, our trading organisation is set up to make profits when volatility occurs, and the first quarter was probably the highest quarter of volatility we have seen. So, it is more about volatility. It does not matter if prices are high or low; it is about volatility,” Auchincloss said on BP’s earnings call. 

BP traded 55 cargos of LNG into Europe in the last five months, 10 of those into the UK, chief executive Bernard Looney said. 

“I guess also on the ultimate role of trading that we need to remind ourselves is to make sure that the molecules find a home and connecting supply with demand has never been more important than it has been for the energy systems in the first quarter,” Looney added.

For Shell, “trading plays an integrated part in our results always,” CFO Sinead Gorman said on the call. 

“But particularly this quarter, it’s fair to say that in our chemicals and products area, particularly on the product side, we had very strong trading and optimization results,” Gorman added, without specifying numbers. 

“Trading is doing a fantastic job,” said Wael Sawan, Integrated Gas, Renewables and Energy Solutions Director at Shell. 

Going forward, all three European majors—and many others—have sworn off signing or renewing contracts to buy Russian oil and petroleum products. Shell even had to apologize for buying a Russian crude cargo in the early days of the Russian invasion of Ukraine, following a backlash over the ethics of continuing trade with Russian oil. 

Still, oil and gas trading (with non-Russian fossil fuels) at the supermajors is likely to remain strong in the coming quarters, considering the volatile energy markets and expectations of more volatility amid the Russian war in Ukraine, the EU embargo on Russian oil imports, oil demand trends in China, and the impact of inflation and interest rate hikes on economic growth. 

With so many uncertainties in the global oil and gas markets right now, BP, for example, will be operating “I think probably in a world where volatility will continue to be the order of the day. So, I think we expect a continued volatile outlook for energy prices, and we probably expect prices to remain strong in the near to medium term,” CEO Looney said on the call last week.