UPDATE 2-Oil trader Vitol posts record revenues, margin thins

Thu Feb 28, 2013 11:10am EST

* Traded oil volumes fall slightly to 261 mln tonnes

* CEO Taylor says markets increasingly competitive

* Trading houses struggle to convert growth into profits

By Emma Farge and Dmitry Zhdannikov

GENEVA, Feb 28 (Reuters) - Vitol, the world's biggest oil trader, reported revenues that topped $300 billion for the first time in 2012, while its profit margin was under increasing pressure after slipping below 1 percent to a four-year low the previous year.

Revenues rose by 2 percent to $303 billion, despite a slight drop in traded volumes, along with a rise in energy prices, the Swiss firm said on Thursday. The figure exceeds revenues reported by U.S. No. 2 oil major Chevron.

"It was a year without the additional advantages of market structure or volatility that previous years have offered, and trading markets continue to become increasingly competitive, with additional pressure on margins," President and Chief Executive Ian Taylor said in a statement.

The results showed the challenges that trading houses face in turning growth into profits. In their constant quest to conquer new markets and secure bigger volumes, they rarely end up generating a higher rate of return.

In 2012, furthermore, Vitol failed to repeat its whopping sales gains of 2011, when it increased volumes by 15 percent and revenue by 44 percent to $297 billion.

Like most other private commodity trading houses, Vitol does not release its profit figures publicly. But a copy of a 2011 filing obtained by Reuters showed that its profit margin and cash flow had fallen to their lowest levels in four years.

In 2011, its gross profits rose only by around $100 million to $2.438 billion, generating an overall gross margin for the year of 0.8 percent, down from 1.1 percent in 2010, 2.7 percent in 2009 and 1.2 percent in 2008, according to Reuters calculations.

Vitol, owned by some 330 employees, said 2011 net profit was $1.7 billion, up from $1.5 billion in 2010, and the second highest ever after $2.3 billion in 2009.

By comparison, Chevron's net profit was $27 billion in 2011.

Vitol's closest competitor, Glencore, has yet to release its revenue figures for 2012. It previously said its margins in the oil trading business were around 1 percent.

CONSTRAINED GROWTH

Vitol, like many of its peers, has stepped up efforts to acquire physical assets as it seeks to extend control over supply lines in search of higher profit margins.

The trading firm has expanded in the African fuel distribution business through a 40 percent stake in Vivo Energy and has expanded its footprint in the west African upstream sector.

"We continue to look at a variety of new investment opportunities in the midstream and downstream energy sectors, which can deliver growth and synergy with our core trading business," Vitol said in the statement.

Taylor said he expected growth in global oil demand to be constrained in 2013 at around 1 million barrels per day (bpd) due to weakness in some European economies.

This compares with an estimate of 1.05 million bpd from the U.S. Energy Information Administration.

He estimated non-OPEC supply would grow by around 1.5 million bpd in 2013 due mostly to new production in the United States and Canada, currently enjoying a shale boom.

Vitol, alongside AtlasInvest, purchased a Swiss refinery from insolvent group Petroplus last year, increasing its presence in the European downstream market.

"The new capacity planned to come on line later in 2013 is expected to exceed the growth in demand we are forecasting, so we expect refinery margins to be somewhat lower later this year after an unexpectedly strong first quarter," he said.

The company traded some 261 million tonnes of oil and products in 2012, down from 273 million in 2011.