How oil trader Vitol cashed in on 2020 oil glut to score record profit

March 18, 2021 01:15 PM AEDT | By Team Kalkine Media

How oil trader Vitol cashed in on 2020 oil glut to score record profit

How Vitol Booked Record Profit Amid The Oil Crisis?

To understand the logic behind the latest bonanza results, let us go into the flashback:

The price of WTI crude oil, which is considered as the benchmark for America's oil industry, crashed below US$0.0 per barrel to negative US$37.63 per barrel in April 2020. Buyers usually take delivery of the contracted crude volume from Cushing in Oklahoma or they have an option to complete the contracts through oil sales at whatever price if they don’t want to store it till delivery.

Due to the globally imposed lockdowns and reduced oil demand, there was too much crude oil running out of storage space in Cushing. As a result, buyers were left with the only option to sell crude oil at any price. There were more oil sellers than buyers who were offering money to the buyers for crude oil purchase.

Must Read: Crude oil rally eases on halted European COVID vaccination program

The oil industry registered the darkest phase in its history in 2020, as the prices plummeted to negative territories for the first time. This was the best time for oil traders like Vitol, which purchased cheap crude oil and converted their cargo vessels into floating storage tankers.

However, the decision of production cuts by OPEC and its allies along with the easing of lockdowns in June 2020, pushed the inventories to a downward trajectory slowly, consequently, the prices began to creep upward.

The major capitalising phase came in the second half of 2020, when most of the oil traders booked huge profits. The crude oil prices started to rebound as inventories began declining on surging demand, in the wake of ease in lockdowns powered by coronavirus vaccination programs.

Most of the traders, including Vitol, locked in massive profits by selling crude oil at higher prices during this phase.

Common Trend Across the Industry:

Vitol is not the only commodity trader to have capitalised on the opportunity. The second-largest oil trader by volume, Trafigura also registered a record profit of US$1.6 billion in FY20 ended September 2020.

Another peer in the group, Shell also doubled its profit in 2020 to US$2.6 billion, encashing market volatility.

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