The Daily Telegraph

The low-profile traders making huge profits at Bernard Looney’s BP

Rachel Millard reports on the division driving record results at the energy titan in volatile markets

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Thousands of BP workers find and drill oil and gas from sites around the world, ranging from its Clair field in the North Sea, 46 miles west of the Shetland islands, to its Mad Dog field 190 miles south of New Orleans in the Gulf of Mexico.

But one of its most important business divisions is well away from the rough-and-tumble of the drilling rigs, in a 12-storey glass-fronted building in the heart of London’s business district.

The offices at 20 Canada Square are home to teams of BP’S traders who spend long hours using phones, computers and ever more sophistica­ted data to buy, ship and sell oil, gas and power, exploiting price difference­s in internatio­nal markets to make a fortune for their employer.

The company’s trading division was a key driver in the record profits BP unveiled yesterday, and is set to become more important: helping BP to bring in cash as it starts to cut its own oil and gas production and to ride out volatile markets.

Like its rivals, BP keeps details of the division’s performanc­e closely guarded, however. A key cog in one of the world’s most scrutinise­d public companies remains in the shadows, at a time of revolution in the energy system and huge concern over rising energy prices.

“In volatile commodity price environmen­ts, the trading operations of the likes of BP and Shell tend to be beneficiar­ies,” says Peter Low, co-head of energy research at analysts Redburn. “This is another quarter where that’s been the case. The company won’t quantify precisely what that means, but it’s going to have been a significan­t contributi­on to the results.”

Divulging little informatio­n on their trading divisions is “a very firm position that BP and their peers take”, he notes, with commercial sensitivit­ies and see-sawing markets perhaps making it “easier to try to keep it a bit opaque”.

It has been a strong year for many traders. A squeeze on global supplies as countries re-opened from the pandemic last year pushed up oil and gas prices, which have climbed further since Russia’s war on Ukraine.

Russia’s restrictio­n of gas sales to Europe and sanctions have also triggered major spikes and troughs in prices, while significan­t gaps have also opened up between markets, with Europe trying to draw gas from the US and Asia.

Private trading house Trafigura’s profits climbed 22pc to £2.7bn during the six months to the end of March. FTSE 100 giant Glencore expects to make $3.2bn (£2.6bn) in trading profits during the first half – as much as it normally makes in a whole year. Vitol made record profits of $4.2bn in 2021.

BP is up there with them. Bernard Looney, the chief executive, praised the “exceptiona­lly strong” contributi­on from its oil traders yesterday as the company unveiled overall profits of $8.4bn for the second quarter of 2021, about three times higher than last year. Further details were not forthcomin­g. BP’S finance chief Murray Auchinclos­s batted away questions, pointing only to the adjectives it had used on the division: “exceptiona­l” oil trading this quarter and last; “average” gas trading this quarter, with a fire at a gas terminal in the US hampering results.

What those words mean when applied to a company of BP’S size is unclear. Its published books give some sense of scale, but oil trading figures are combined with figures from its refineries. Gas trading results, meanwhile, are combined with figures for gas production and renewables.

Those two business sets made $4bn and $3bn profits during the quarter respective­ly, up from $827m and $1.2bn last year. That compares to $5.9bn from its oil production and operations. BP has also indicated the trading arm adds about 2pc to its return on capital.

There are occasional shafts of light, as internal documents make their way unofficial­ly into the public eye. Internal presentati­ons seen by Reuters showed BP’S trading arm made a nearly $4bn profit in 2020 and slightly over $4bn in 2019, helping to shield the company from the crash in the oil and gas prices during the pandemic.

The slump in demand as airplanes were grounded and motorists forced to stay at home presented an opportunit­y for traders with access to storage, who could buy oil at exceptiona­lly low prices and sell it back as prices rose. BP made about $1.7bn on this strategy in the second quarter of 2020, according to Reuters. In a sign of the opportunit­ies to be had, nine independen­t Essex-based traders reportedly made about £500m as US oil prices briefly turned negative. Meanwhile as gas prices climbed in the third quarter of 2021, BP traders made at least $500m, sources told Reuters.

Volatility also poses challenges managing trades, but BP’S size helps. “The natural gas volatility is the big challenge with trading right now,” Auchinclos­s said. “That’s why you see our cash levels are so high to manage that liquidity as we move through this difficult time through the winter.”

He said he viewed the company’s job as “to provide energy flows”, helping to get cargoes of liquefied natural gas into Europe, which is struggling with the loss of Russian supply.

He highlighte­d this role at a hugely sensitive time for the company. Mr Looney spent much of yesterday defending BP against criticism over its profits given the record energy bills facing households. Analysts now predict average household bills in Britain could stay above £3,000 for 15 months after October. For BP, huge trading profits are arguably even less politicall­y palatable than huge profits from production.

Last night, Bloomberg reported that BP’S global head of crude oil trading, Daniel Wise, is expected to retire this month. He bows out at a high point. With turmoil on energy markets set to continue, his successor may not avoid further scrutiny for long.

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 ?? ?? Bernard Looney praised the contributi­on of BP’S traders to its profits yesterday
Bernard Looney praised the contributi­on of BP’S traders to its profits yesterday

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