Trafigura Oil Head Says Assets Support Profit

Trafigura Group’s recent investments in refineries and distribution assets have helped support its oil business, even as rivals saw their profitability slide, according to the trader’s head of oil, Ben Luckock.

Investments in distribution business Greenergy, the Fos-sur-Mer refinery in France, and several new vessels have “quickly made a material difference to our business performance and knowledge base,” Luckock said in an interview with Bloomberg News in Singapore on Wednesday.

His comments come as some of the world’s biggest energy firms from Gunvor Group to Shell Plc bemoan headline-driven price moves that have dented earnings from trading oil after a period of record profits.

“It’s been a difficult nine months for parts of the trading community. Many have struggled with the unpredictable nature of policy-driven volatility,” he said.

Meanwhile, margins for refining oil have risen amid robust demand for fuels, while product supplies have been crimped by Ukrainian attacks on Russian production facilities.

Trafigura moves enough oil daily to supply France three times over and is the world’s biggest metals trader. The company reshuffled its crude and oil products teams last year, with Dan Woodbridge now running crude and Tom Farrant taking on the global gasoline book. Both have had “a strong last few months in the market,” said Luckock.

Although assets can provide trading houses with advantageous market positions, the industry has had a mixed record of managing and integrating upstream, processing and distribution businesses. Trafigura, which has previously taken big write-downs on some of its zinc and oil distribution investments, has established a new division to manage all its assets.

“The creation of the Asset Division is the single biggest change we’ve made in recent years. It has already had a very positive impact,” Luckock said.

The company is under some pressure to keep profitability high to ensure it pays out a slew of senior executives retired recently.

Oil’s risk premium

Traders from across the oil industry gathered in Singapore this week against the backdrop of a looming oversupply due to rising production from inside and outside the OPEC+ group, and amid concerns of a global growth slowdown. 

Still, Brent prices have held above $65 a barrel through the week. 

“In my opinion, fair value for oil is probably somewhere in the mid-$50s based on supply and demand fundamentals,” said Luckock. But prices are not at that level due to numerous risk factors the market is currently pricing in — like sanctions, US President Donald Trump’s tariff agenda, Middle East tensions, and the war in Ukraine. Chinese buying for its strategic petroleum reserve also continues to support the market, he added. 

“If those risks were removed, we would return to normal supply-and-demand economics, and the price would likely trade lower,” he said.

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