* Volumes seen increasing faster than profits
* Some traders happy with 10 cents a barrel
By Emma Farge
LONDON, Feb 24 Record volumes of oil trade
and a crude price near $125 a barrel did not mean record profits
for those gathered under the glittering chandeliers of the best
London hotels for International Petroleum week.
The world's top oil trader Vitol has reported its highest
ever trading volumes and revenues of nearly $300 billion but
like all the big hitting trade houses, except Glencore,
it keeps its profits private.
Traders and executives flitting between more than 30
industry parties this week said profit margins per barrel of
traded oil are near historical lows, driving them to sell more
cargoes for less money and fight for their bonuses.
"Ours is a volume business. There's lots of volume and sadly
small margins. I think that's one of our concerns - it remains
incredibly competitive," Vitol's chief executive Ian Taylor told
Reuters in an interview.
Traders said they often only manage to eke out 10 cents a
barrel on an oil deal, compared with several dollars during the
golden days of the 1970s.
"When you make 10 cents out of a barrel you are happy. Even
in the 1990s you could make between 50 cents and a dollar. It's
changed. There just aren't the same opportunities," said a
Geneva-based oil trader who flew over for the annual
International Petroleum (IP) week gathering.
Another manager at a London-based commodities merchant said
he recently congratulated a trader on a 50-cent margin only to
discover insurance had not been factored in.
"At these levels, if you are slammed with a demurrage
(shipping) problem or something suddenly your margin is wiped
out," said an oil products trader, between sips of Louis
Rouderer 2009 vintage champagne at a party this week.
"I want to switch to crude because the ships are bigger and
you can handle more volumes."
Other top traders like Geneva-based Gunvor and Socar Trading
have also reported sharp increases in revenues and turnover in
Glencore is the only major trading merchant that releases
profits as it is publicly listed. Energy trading generated 62
percent of its revenues but brought in a margin of just one
percent for a second consecutive year in 2011 compared to 3-4
percent in metals.
Ten cents a barrel still amounts to a decent nominal profit
of around $200,000 on a Very Large Crude Carrier . But
traders say it is peanuts compared to the 1970s when Middle
Eastern producers began marketing their own oil, forging the
This was when the godfather of modern oil trading, Mark
Rich, is reported to have made as much as $14 a barrel from
lucrative deals selling Iranian oil to U.S. buyers after the
fall of the Iranian Shah in 1979, according to his biographer.
Big plays were also possible in the 1990s as Western growth
recovered from recession and many like Alex Beard, current
director of oil at Glencore, made their names from selling
Middle Eastern oil to the West.
Now, with oil demand growth concentrated in Asia and
refinery closures such as Petroplus assets in Europe and
ConocoPhillip and Sunoco assets on the U.S.
East Coast, the client pool has been cut.
Six figure rewards for traders have shrunk for some to a
five-figure base salary, dealers said.
The rise of algorithmic traders has also reduced the number
of easy deals to be done based on price arbitrages between
futures contracts, traders said. And high spot prices relative
to other futures means it is tough to make money from simply
storing oil, like traders did in the 2009-2010 when the market
structure was reversed.
"I don't really think trading margins have really fallen. I
think traders are just complaining because they can't do what
they've been doing for over two years, which is buy product and
sit on it," said an oil products trader.