Mint ·
Barrels of Sake and Rooftop Galas: Energy Traders Toast the War Boom
As geopolitical conflict disrupts global supply, commodities brokers and traders are reaping profits.
The crowd gasped as the brokers swung the wooden mallets on the lid of the sake barrel, cracking it open in celebration. “Everyone please give them a hand,” the MC said, as Japanese liquor was passed around.
The party, held in the Rendezvous Hotel, was hosted by BGC Group, a U.S.-listed brokerage whose fortunes have boomed since the Iran war upended global energy markets.
At a separate event across town, BGC Group—the U.S.-listed broker formed two decades ago by current Commerce Secretary Howard Lutnick—celebrated its strong year with the barrel of sake. In recent earnings statements, BGC said that the Iran shock boosted a business that was already performing strongly.
Brokers can make more money during wartime as conflicts disrupt physical supplies of energy. That forces physical buyers of crude and oil products, such as airlines or refiners, to buy financial derivatives that hedge against price spikes. Brokers take commissions for each transaction, benefiting from the increased volume caused by buyers constantly trying to manage price swings.
At BGC’s dinner event, elegant women in bright-red pencil dresses handed out drinks. Japanese chefs gave a loud heave-ho before slicing up a four-foot-long tuna to be handed out as sashimi to guests.
Marex, another financial broker experiencing a strong year, organized drinks and canapés at Lavo, a stylish Italian restaurant at the top of Marina Bay Sands, Singapore’s iconic building of three skyscrapers with a boat-shaped cantilever perched across.
The biggest names in oil trading also hosted events in Singapore. Privately held commodities traders such as Trafigura and Vitol make money by buying oil from producers in one location at a low price and selling it later to buyers elsewhere who are willing to pay higher prices.
Many commodities traders also manage shipping logistics. Loading a supertanker with oil, transporting it from the Middle East to Asia and offloading it is no easy feat even in peacetime. During a war it can be highly complex and risky—vessels might be hit by drones, crew members could die and insurance costs are high.
However, market upheavals like this are exactly when independent traders who shift oil, natural gas and metals around the world and are willing to take the risks get to reap giant profits. Commodity traders often profit when prices in different regions and at different times move out of whack.
Vitol’s chief executive, Russell Hardy, was one of the main morning speakers at the S&P conference last week, and the company entertained clients at the historic Raffles Hotel, which has hosted celebrities, artists and heads of state over the years and where the famous Singapore Sling cocktail was invented.
In June, Vitol transported millions of barrels of Iraqi crude. The move would help the Iraqi government—which was starved of cash and offering oil at a deep discount to traders who could move its crude out of the Persian Gulf—but also benefit Vitol, which could later sell it at a much higher price.
“If you’re a trader, then your kind of USP is that you are the master of the physical barrel,” said Tom Reed, head of oil-markets analysis at Argus Media. “You are able to identify a discrepancy in prices between regions or across timings,” he said, adding, “you can make enormous amounts of money.”
Trafigura, one of the largest commodity traders in the world, reported a 173% year-over-year surge in net profit for the six months ended on March 31. Mercuria Energy Group saw its unaudited profits for the nine months ended in June surge 122% from a year earlier, according to numbers seen by The Wall Street Journal.
It isn’t just independent traders. Shippers who work with the traders to move cargo are also benefiting. Higher insurance costs and a shortage of shippers willing to cross the Strait of Hormuz have pushed costs up. Sailing an oil supertanker from Oman to South Korea topped $572,000 a day in mid-September—more than double February rates, according to Clarksons Research.
In recent years, listed European energy majors such as BP and TotalEnergies have also expanded their trading operations. Guests at Appec events discussed a major trade earlier this year that paid off for TotalEnergies. The oil trading business of the French energy giant observed the U.S. Navy amassing near the Persian Gulf at the end of February, just before the U.S. and Israel started their attack on the country, Patrick Pouyanné, Total’s chief executive, said during a shareholders meeting in May.
“So they took a position that wasn’t an easy one to take, which was to buy oil with debt when markets were saying that oil was going to go down,” Pouyanné said.
A spokesperson for TotalEnergies declined to comment on its trading unit’s earnings. In July, the firm said trading in crude oil and petroleum products delivered $500 million in “overperformance” in the second quarter, beyond what was normally expected.
In Singapore, TotalEnergies entertained guests at the Clifford Pier, a chandelier-lit hall overlooking the harbor. “It offers an extraordinary setting for unforgettable occasions,” according to its website.