Trafigura Boosted Tanker Fleet By 70% During 2020’s Historic Oil Contango

By Andy Hoffman (Bloomberg) —

Trafigura Group boosted its shipping fleet by 70% in April last year to profit from the wild price swings in the oil market caused by the pandemic, the company’s CEO said.

As government-ordered lockdowns destroyed about a quarter of normal oil demand, Trafigura secured as many oil tanker ships as it could to store the excess, Jeremy Weir, Trafigura’s chairman and chief executive officer said at the Future Investment Initiative conference in Saudi Arabia.

“We anticipated the demand destruction so we were able to ensure we were able to move the cargoes and buy the cargoes,” Weir said.

U.S. oil futures briefly plunged below zero in April as monthly contracts expired and holders desperately sought tanks to store the oil.

Trafigura didn’t foresee negative prices but “what we did expect to see was an issue around storage and an issue around supply chains,” said Weir.

At one stage last year, the market was so glutted that Trafigura was using everything from giant supertankers to tiny barges to hold barrels, Ben Luckock, the firm’s co-head of oil trading said at the time.

The unprecedented volatility proved a boon for traders such as Trafigura, who had access to ships and tanks to fill with crude. They were able to take advantage of a market structure known as contango that allowed them to sell forward futures contracts to lock in profits and deliver the oil later at higher prices.

Trafigura posted its best ever trading profits in its fiscal 2020 year, which runs to the end of September. It earned a record $5.3 billion in gross profit from oil trading, a threefold surge from the year before.

April, when oil prices went negative, was the busiest in the closely held company’s 27-year history even as most employees were working from home, Weir said.

“It really was an extraordinary time,” he said.

© 2021 Bloomberg L.P.

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