BP Lifts Veil of Secrecy on Big Oil Trading Profits
A company logo sits at a BP Plc petrol and refueling station in London, U.K. (Photographer: Luke MacGregor/Bloomberg)

BP Lifts Veil of Secrecy on Big Oil Trading Profits

BP Plc offered a glimpse of the profitability of its huge and secretive trading arm, suggesting it makes annual returns of as much as $2.5 billion.

The revelation, which came during presentations this week about the company’s clean-energy plans, follows the emergence of trading in the first half of the year as one of the few bright spots for BP and its peers. The operations brought a torrent of cash that partly offset the impact of the coronavirus crisis on oil prices and energy demand.

BP’s in-house trading business has a “long track record” of boosting the company’s return on average capital employed by “close to” 2 percentage points, according to Chief Executive Officer Bernard Looney.

Unlike the closely guarded trading profit, the company does disclose the average capital it employs each year. From 2015 to 2019, that figure was $124.2 billion a year, according to last year’s annual report. That suggests a 2% uplift to the RoACE equates to about $2.5 billion. That’s more than Vitol Group made in 2019, which was a record year for the company.

BP doesn’t disclose the profits of its trading unit and declined to comment on questions from Bloomberg News about this calculation.

The major published the figure this week as part of its bid to convince investors that its trading unit can help boost returns for less-profitable renewables. Trading, access to low-cost funding and integration are some ways that the company thinks it can achieve 8% to 10% returns across its renewables portfolio. “We actually believe we can do better, and these returns could turn out to be conservative,” Looney said.

Major Trader

Although better known for its oil fields, refineries and fuel stations, BP is one of the world’s largest commodity traders. Alongside rivals Royal Dutch Shell Plc and Total SE, it bets its own money on the ups and downs of the global oil and natural gas markets.

The company said it traded just under 11 million barrels a day of crude oil last year, more than the best-known names of the commodity trading industry such as Vitol, Trafigura Group and Glencore Plc.

Historically, the three major oil companies have disclosed as little as possible about how their traders make money. When investors earlier this year asked Total about the profitability of its trading business, CEO Patrick Pouyanne responded: “Oil trading is a secret.”

The companies’ trading operations exploited wild price moves this year created by the pandemic. BP, for example, highlighted “exceptionally strong results” in its trading arm during the second quarter, while Shell’s equivalent division enjoyed record profits.

©2020 Bloomberg L.P.

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