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What is the difference between a driller and a trader? Iran War exposes Big Oil’s transatlantic division: Bousso
The first quarter profits of European oil majors were boosted by bumper trading gains, as the Iran Warupended supply chain. This highlights how shifting?barrels across the globe can sometimes be more important than pumping them from the ground. BP, Shell, and TotalEnergies spent years developing vast oil trading'machines' that are now at the core of their businesses - setting them apart from their U.S. counterparts, for better or for worse. BP announced a first-quarter profit of $3.2 billion on Tuesday. This is more than twice the figure from last year, largely due to what BP called an exceptional performance in its oil trading. Oil trading is housed in the Customers and Products division, which has a profit of $3.2 billion before tax and interest. This is the best result for oil trading since Russia invaded Ukraine in 2022. According to ROI calculations, BP’s oil trading – the buying and the selling of crude and other fuels for its global retail network as well as end customers – likely contributed $1.5 billion pre-tax profits in the third quarter. The size of BP's trading operations is both a source of upside potential and risk. The company trades 12 million barrels per day, which is equivalent to roughly 11% global demand. This is 10 times BP’s upstream production capacity and 8 times its refinery capacity. TotalEnergies reported a $5.4 billion net profit for the third quarter. This was a 29% increase year-over-year, driven in part by strong trading. Earnings in the segment of refining chemicals, which is where Total's oil trade takes place, have more than quadrupled from a year ago to $1.6 billion. Shell, which is estimated to trade 14 million barrels per day, has also reported a strong performance in the first quarter ahead of its results on May 7. OPPORTUNITY RISK The majors have the flexibility to take advantage of small price fluctuations across products and regions because they can exploit a'sprawling network of refineries, storage terminals, pipelines and tankers. The opportunities and dangers multiply when those dislocations reach seismic levels, as they have in the last two months. Since the Iran War broke out on 28 February and the Strait of Hormuz has been effectively closed, over 13 million bpd of production - 13% of the global supply – have been trapped in the Gulf. This has sent shockwaves throughout crude and refined products markets. The impact was massive. Brent crude has increased by more than 60% since the beginning of the war, to $115 per barrel. This is accompanied with tremendous volatility on oil, fuel, and liquefied gas markets. Arbitrage is possible when disruptions of this magnitude occur. Rerouting diesel or jet fuel in highly unusual ways, like shipping cargoes to Australia where prices have risen since the beginning of the conflict, is one example. Trading at this level is capital intensive and can be unforgiving when things go wrong. Tankers that hold large amounts of cargo for long periods can cost a lot of money. BP said that its working capital increased by $6 billion during the third quarter. This included $4.1 billion due to higher oil prices, longer routes for shipping and larger inventories. These positions will unwind in the coming months but they are still significant. Large trading arms have been able to absorb losses during this turbulent time. BP is heavily exposed to the Gulf. Equity upstream production was around 411,000 barrels per day (bpd) in the Middle East - or about 17% of total output by 2025. TotalEnergies accounts for 15% of its production through operations in Qatar and Iraq, as well as the United Arab Emirates. Shell reported a lower production due to "outages" in Qatar. BP estimates trading can typically deliver a return of up to 4% on the average capital invested. Shell provides similar advice. In times of extreme volatility, this increase is almost certain to be higher. UNRIVALED EXTRACT Exxon Mobil, Chevron and their European competitors may envy the trading profits of their European counterparts. Both U.S. giants keep trading under tight control, using it only to manage internal volumes?upstream or downstream. Previous attempts to create more independent trading desks failed, partly because the highly centralised decision making at these firms prevented traders from acting quickly in fast-moving markets. This contrast is a two-way street. Exxon may not have the same trading success as the European giants, but their upstream operations are far superior. Exxon-Chevron will produce 4.7 million bpd in 2025 and 3.7 millions bpd by then, which is well above BP, Shell, and TotalEnergies, who each produced 2.5 million bpd. The European upstream sector's weakness is partly due to the heavy investments made in renewables and lower-carbon fuels in this decade. BP and Shell have retreated from this strategy following heavy losses but still lag behind their U.S. competitors. Exxon's and Chevron’s massive production engines will generate enormous cash if the prices remain high after the Iran War, but the trading profits of BP Shell and TotalEnergies might not be re-created if volatility decreases. Investors find it difficult to value trading operations because they are opaque and volatile. Trading could become more important to European majors, given their inability match U.S. competitors on production. This would increase the valuation gap between Europe and America. Energy industry will be increasingly defined by new divisions: traders and drillers. You like this column? Open Interest (ROI) is your new essential source of global financial commentary. Follow ROI on LinkedIn and X. Listen to the Morning Bid podcast daily on Apple, Spotify or the app. Subscribe to the Morning Bid podcast and hear journalists discussing the latest news in finance and markets seven days a weeks.
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LME WEEK - Iran War, Supply Shocks on Agenda as Metals Industry Gathers in Hong Kong
The London Metal Exchange's Asia Week conference, which takes place next week in Hong Kong, will be dominated by geopolitics. The U.S. and Israeli war against Iran has caused a shock to the energy market, which is affecting the outlook for demand of most metals. The blockade of the Strait of Hormuz?has?trapped?large quantities of aluminium, sulphur and sulphuric acids that are used to produce copper and nickel. In the meantime, governments in Indonesia and Guinea tighten their grip on production through export quotas as well as tax changes. This is a new type of resource nationalism. Here is a summary of the main themes: SHFE Internationalisation Shanghai Futures Exchange has opened nickel contracts for foreign investors since April 22. This is the latest move to open China's commodity derivatives markets to outsiders. Many companies have expressed interest, even though it's too early to predict the volume increase that this move will bring. The Chinese yuan is expected to be used more. NICKEL – FLIPPING? TO DEFICIT Indonesia, the country that flooded the global nickel markets, now tightens supply by reducing mining quotas, and increasing taxes. Some producers are also affected by the war's sulphur deficit. Huayou Huafei's project had to reduce its production by about half from May 1 due to rising costs. The market is heading for its first deficit since 2021 due to tighter supply. Nickel is up 17% in this year, trading near its four-year highs. COPPER – HOW SULPHURIC ACIDS WILL SHAPE TC/RC Talks The war in the Middle East and China's decision to limit exports in order to lower domestic prices have led to a global shortage of sulphuric acids, which are used in copper mining. Prices were high prior to the war, and they rose by 5.61% in?April after a drop in 'March due to higher energy prices. This windfall could complicate negotiations with copper miners in the future if they ask for a reduction or want to use their profits to push processing fees down below zero. Chinese smelters are resistant to contracts with negative fees. However, spot transactions have been?negatively?charged for over a year. ALUMINIUM - IS A GULF OUTAGE BECOMING A GLOBAL SQUEEZE Mercuria, a market analyst, has described the Iran War as the "black swan event" for the industry. Guinea, upstream, is adding a new pressure point by introducing a bauxite import curb. Prices for semi-finished aluminum billets in Europe have doubled since war began, but prices in Asia are lower due to steady exports from China. LME aluminum is up 17% since the start of the war. It is unclear how high prices could go. Last week, analysts polled predicted prices for the third quarter to be 11% lower than Friday's close of $3 669 per ton.
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MORNING BID - Central bank hawks scare off bonds but tech is unaffected
Stella Qiu gives us a look at what the future holds for European and global markets. Jerome Powell’s parting gift was a hawkish one - the U.S. Central Bank held interest rates steady, but in the most polarized vote since 1992, three regional presidents disagreed over language that indicated an “easing bias”, claiming such language was not appropriate due to a?elevated? inflation and the massive uncertainty regarding oil prices resulting from the U.S. supported war against Iran. It is not uncommon for central banks, including the BoC, to raise the alarm about inflation when Brent oil reaches a four-year-high of $125 per barrel. According to media reports, U.S. president Donald Trump will receive a briefing today on the new military options against Iran. Peace talks have appeared to be stalled. Powell confirmed that he will remain as a Fed Governor until the outlook is clearer. He has essentially taken over for Stephen Miran, who was a Trump supporter and voted in favor of a rate reduction on Wednesday. Many analysts believe Powell will join the hawks in order to oppose further attempts from Trump and his new Fed chair Kevin Warsh to reduce interest rates. Treasury yields spiked as traders priced in any?chance that rates would be cut this year. The traders now see an equal chance of a Fed rate hike by April 2027. This is a complete reversal of the situation before the start of the war at the end February. The equities were, however, in a world created by AI. Nasdaq Futures rose by around 0.4% due to the generally positive earnings of four tech giants in the first quarter. Alphabet, the parent company of Google, soared by 7% after exceeding forecasts. Microsoft and Amazon.com also delivered, but Meta Platforms disappointed due to concerns about its AI spending. Apple is expected to continue the party later today. South Korea's KOSPI is set to rise 32% in April. This would be the biggest monthly gain since 1998. Taiwan stocks are expected to increase 24.5% over the course of the month. Stock futures for the entire region are down by 0.4% due to the gulf that exists between macro fear and micro euphoria. Investors are nervously watching the European Central Bank (ECB) and Bank of England who will both announce their?decisions in the near future, for fear that they may turn even more hawkish. The March inflation figures from Europe and America will also be released and reveal the first impact of the Iran War. The rise in petrol prices will almost certainly lead to a spike in headline inflation, but everyone knows that the worst is still yet to come. The following are key developments that may influence the markets on Thursday. Estimates for the eurozone and U.S. GDP in Q1 Inflation in the EU for March U.S. PCE Inflation and Spending for March Apple Q1 earnings -- ECB, BOE decisions
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US growth is likely to have picked up in the first quarter but consumer spending has probably cooled
The U.S. economy accelerated in the 1st quarter, likely due to a rebound of government spending following a crippling shutdown. However, the improvement is expected to be short lived as the war against Iran will drive up gasoline prices and squeeze household budgets. The expected increase in gross national product for the last quarter would also'reflect robust growth of business investment in equipment. Fueled by an artificial intelligence spending boom, and the construction of data centers that underpin the technology. The 'Commerce Department's' advance estimate of the first-quarter Gross Domestic Product on Thursday will show that consumer spending has weakened further, even before the U.S. and Israel war with Iran increased the average U.S. gas price to over $4 a gallon. Brian Bethune is an economist at Boston College. He said, "We are still in a relatively slow-growth mode. Nothing exciting." There's not much to start a fire. "There are a few warm embers but no fire." A survey of economists suggested that GDP growth increased at an annualized rate of 2.3% last quarter. The estimates ranged from 0.2% contraction to 3.9% growth. The survey ended before Wednesday's data showed that non-defense capital orders, excluding aircraft - a proxy closely watched for business spending – jumped by 3.3% in march. This increase was partly offset by an accelerated widening of the goods trade surplus due to imports. However, some of these products ended up in inventory at business warehouses. The economy grew at a pace of 0.5% in the quarter October-December. The federal government's spending was cut by 1.16 percentage points in the third quarter, the largest drop since the first. Economists predicted a partial reverse, with estimates that government spending contributed at least one full percentage point of GDP growth in the last quarter. The Federal Reserve would hold rates at the current level, perhaps until 2027, if the economy did not deteriorate. On?Wednesday, the U.S. Central Bank left its benchmark interest rate at 3.50% to 3.75%. It noted rising inflation concerns. In the current environment, they don't have to do anything to support the labor markets," said Gus Faucher, chief economist of PNC Financial. They can maintain rates at the current level through 2026 and 2027, until we have a clearer picture of the future of the Iranian situation and energy prices as well as the state of the labor market. In the first quarter, employment growth averaged 68,000 new jobs per month compared to 20,000 monthly gains during the same time last year. Some economists blamed President Donald Trump's immigration and trade policies for the labor market slowdown compared to that of 2023 and 2024. The weak labor market has dampened wage growth. Tariffs increased the price of certain goods, despite the fact that inflation was relatively moderate. Economists say consumers are relying on their savings, or saving less than they used to in order to maintain spending. This cannot continue forever. In February, the saving rate was at 4.0%. WEATHERING CONSUMER SPENDING IS ANTICIPATED The growth of consumer spending, which makes up more than two thirds of the GDP, will have slowed from the 1.9% rate in the fourth quarter. The Personal Consumption Expenditures Index, which measures the growth of consumer spending in the economy, is expected to have increased by 3.8% last quarter after increasing at a pace of 2.9% during the previous quarter. This index is one measure of inflation that the Fed uses to track its 2% target. Economists warn that higher inflation could offset some of anticipated stimulus from tax cuts. Economists predicted that the boost from tax refunds would soon fade, resulting in weaker spending for this year. Bethune, from Boston College, said: "The savings rate has gone down to support the consumer spending. I don't believe it will go any lower." "With inflation on the rise, real wages have remained pretty flat." "There's nothing that will propel consumer spending in a meaningful way." Business spending on equipment is expected to grow by double-digits, taking up the slack in consumer spending. Business spending, outside of AI-related investments was likely not as impressive due to the ongoing weakness in nonresidential structures such as factories. AI spending is causing imports to increase, which has led to an increase in the trade surplus. This likely lowered GDP growth in the last quarter. The fact that some imports ended up in warehouses due to a slowdown in consumer spending likely masked the impact of the shortfall. The housing market is still being stifled by high mortgage rates, which are expected to continue to dampen residential investment for the fifth consecutive quarter. Economists predict that the Middle East war will weigh on the economic growth in the second quarter. Oren Klachkin is a financial market analyst at Nationwide. He said that the impact of the conflict on the economy peaks in the second quarter. Consumer discretionary spending was the hardest hit. There is a danger that the damage will spill over to the second half. (Reporting and editing by Paul Simao; Lucia Mutikani)
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Reports that the US is considering military options for Iran's break-out have caused oil prices to rise.
Oil prices rose Thursday after a report that the U.S. was considering military action against Iran to break the deadlock of negotiations to end the conflict. This increased concerns about more supply disruptions for already curtailed Middle East Exports. Brent crude futures, for June, rose by $5.27 or 4.5% to $123.30 per barrel at 0347 GMT, after rising 6.1% the previous session. The June contract expires Thursday. It has been increasing for nine days. The more active contract, the July contract, was trading at $113.10 up $2.66 or 2.4% after rising 5.8% the previous session. U.S. West Texas Intermediate futures were up $2.42 or 2.3% at $109.30 per barrel after climbing 7% the previous session. They have risen in eight of nine sessions. Both benchmarks have a chance to reach their fourth consecutive month of gains. According to a report published by Axios late Wednesday, U.S. president Donald Trump will receive a briefing Thursday about plans for a series of military attacks on Iran to encourage it to return to negotiations over its nuclear program. U.S., Israel and other countries began air strikes against Iran on 28 February. In retaliation, the U.S. closed off shipping in the Strait of Hormuz - a chokepoint of energy from Middle Eastern producers. The U.S. has blocked Iranian ports amid a ceasefire which has stopped active combat. The talks to end the conflict have reached a deadlock. The U.S. insisted on talking about Iran's alleged nuke weapons programme, while Iran demanded some control over the Strait of Hormuz and compensation for the damage caused by the war. In a recent note, ING analysts said that the oil market had moved from an overly optimistic state to the reality we are now seeing in the Persian Gulf. A White House official stated that Trump had spoken with oil companies on Wednesday about ways to reduce the impact of a possible U.S. Blockade lasting months. Tony Sycamore, IG's market analyst, said that the prospects for a near-term solution to the Iran conflict and a reopening of 'Strait of Hormuz' remain dim. Sources said on Wednesday that the OPEC+ grouping of Organization of the Petroleum Exporting Countries members and their allies will?likely agree on a small increase of 188,000 barrels a day in oil production quotas by Sunday. The meeting is held just one week after the United Arab Emirates withdrew from OPEC on May 1. This withdrawal will have a major impact on the ability of the oil producer 'group to control the prices. The Gulf nation's departure would allow them to increase production once exports resume, but analysts believe that this will not affect the market fundamentals in the coming year. This is especially true with the closure of the Hormuz and other production disruptions due to the war. Wood Mackenzie analysts stated in a report that it would take several months for Gulf countries, including UAE, to reach pre-war levels of production.
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India's Torrent Power sells its largest debt to date to finance coal deal
Three merchant bankers told a group of 'tourists' on Thursday that India's Torrent Power will 'launch' the first acquisition-funded bond issue 'of the current fiscal year. This would be the 'largest debt issuance' for the company to date. Bankers say that the power producer is planning to raise up to 40 billion rupees (421.8 million dollars) by selling bonds with a longer maturity, and may have staggered redemptions, similar to the previous issue. The company expects to tap the market in May. Discussions are expected to be concluded within the next few days. One of the bankers stated that the company had also made a deal with mutual funds. It is therefore possible that the firm will split the amount into shorter and longer tenors. The bankers asked for anonymity because they were not authorized to speak with the media. Torrent Power has not?responded immediately to a comment request. Crisil Ratings and India ratings have rated the bonds AA+. The company raised 20 billion rupees in March through staggered redemption bond maturing over eight years, nine and ten years at an annual coupon rate of 7.97%. The proceeds from Torrent Power’s?latest bond sale?will be used to purchase another company after India’s competition regulator approved Torrent Power’s purchase of Nabha Power's 100%?shares earlier this month. In February, Torrent Power announced that it would buy a coal-fired plant operator from Larsen & Toubro, for approximately 69 billion rupees including debt, in order to increase its capacity in the area. Nabha Power has a coal-based 1,400 megawatt?plant located in the northern province of Punjab. It supplies its entire output to the state-owned power corporation under a 25-year agreement. The deal will add to Torrent Power’s?recent push? to scale up its thermal capacity, as utilities look to coal-based capacities to meet India's growing electricity demand. ($1 = 94,8400 Indian Rupees)
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Dalian iron ore companies on positive China factory activity data
Dalian iron-ore futures rose on Thursday for the second session in a row, as positive factory activity data from China boosted demand prospects. As of 0222 GMT, the most-traded contract for?September Iron Ore? on China's Dalian Commodity Exchange was?0.51% higher. It stood at 787.5 Yuan ($115.15), per metric ton. The contract is up 0.19% this week. From May 1 to 5, the markets in China will be closed for holiday. The benchmark June Iron Ore at the Singapore Exchange is?0.06% less expensive, $106.35 per ton. The contract is up 0.37% this week. An official survey revealed that China's factory activity increased for the second consecutive month in April, largely due to higher output and increased stockpiling. This suggests that the growth momentum continued despite external shocks from Middle East war. According to a National Bureau of Statistics survey, the official manufacturing purchasing managers' (PMI), which measures growth, fell to 50.3, from 50.4, in March, but remained above the 50 mark that separates contraction from growth. The median poll forecast was 50.1. The survey, which followed better-than expected first-quarter growth showed the resilience and strength of the Chinese economy. However, prolonged inflationary pressures may also affect?external consumption, on which the country depends to offset its tepid internal consumption. Baoshan Iron & Steel Co., China's largest listed steelmaker, announced on Wednesday a?fall of 8.6% in its net profit for the first quarter,?due to?higher feedstock costs related to Iran war. Steel prices dropped 4.4% while iron ore prices rose 3.2% in the first three months of the year, according to Baosteel. This subsidiary is owned by the China Baowu Steel Group. It is the largest steel producer in the world. Coking coal and coke, which are used to make steel, also rose, by 0.91% each. The majority of steel benchmarks traded on the Shanghai Futures Exchange rose. Rebar gained 0.57%; hot-rolled coil 0.59%; stainless steel rose 0.97% and wire rod lost 1.01%. ($1 = 6.8388 yuan) (Reporting by Ruth Chai; Editing by Subhranshu Sahu)
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Axios reports that US military commanders will brief Trump on new options for Iran
Brad Cooper, the head of the U.S. Central Command (Axios) reported Wednesday that U.S. president Donald Trump will receive a briefing on new 'plans' for a?potential armed action against Iran. According to a report citing unidentified sources, the briefing will be held on 'Thursday. The 'White House didn't immediately respond to an inquiry for comment. Axios cited sources to report that CENTCOM had prepared a plan of a "short, powerful" strike on Iran. This would likely include infrastructure targets. The report said that Washington would hope to see Iran be more flexible at the table when it comes to nuclear issues. The'report' added that a plan to take over part of the Strait of Hormuz and reopen it for commercial shipping may include ground forces. Axios reported that a?special forces?operation could be discussed in the briefing to secure Iran's?stockpile of highly enriched Uranium. Axios reports that the U.S. Joint Chiefs of Staff Chairman General Dan 'Caine will also attend Thursday's briefing. Kanishka Singh, Chandni?Shah in Bengaluru and Himani Sarkar and Lincoln Feast edited the report.
BASF's operating profit falls due to forex effects and pressure from competitors
BASF reported on Thursday that its quarterly adjusted operating profits had declined 5.6%. It cited 'negative currency effects and 'competitive pressures.?It also added that the impact of the Iran War was uncertain. BASF reported that its first-quarter earnings were 2.36 billion euros ($2.75 billion), after adjusting for special items. This was a decline from the 2.19 billion euro average analyst estimate.
The German chemical company reaffirmed that the adjusted EBITDA is likely to reach?6.2-7.0 billion this year compared with 6.6?billion in 2025.
The company also projected a Brent crude oil average price of $65 per barrel in 2026. This was unchanged from February's assumptions, and a little more than half the current price.
It added that this was due to the "high degree of uncertainty" about the outcome of the conflict in the Middle East.
"The assumptions that were made in February about growth in the global GDP, industrial production and chemical production could prove to be overly optimistic." "The oil price could?be higher that our current assumption," the report?added.
Brent crude futures rose over 6% to a four-year high of $125 per barrel on Thursday, following a report stating that the U.S. was considering further military action against Iran. ($1 = 0.8578 euro) (Reporting and Editing by Friederike Hiene, Ludwig Burger and Patricia Weiss)
(source: Reuters)