Major US commodity companies were hit hard by oil after the US-Israel war in Iran shattered an old market bet, according to a new study by Oliver Wyman that said these major trading groups lost more than $10 billion at the start of the conflict.
More than 100 fuel tankers were stuck in the Gulf, oil prices rose, and companies that normally make money in the chaos suddenly lost a lot of trade and shipments.
How did commodity traders misunderstand oil demand and pay for it in cash?
The pain also spread through physical oil trading. Goods sold for later delivery were unable to move as planned once the war disrupted shipping in the Gulf, which left traders and oil companies with the nasty problem of keeping promises of delivery but the original barrels were brought in, so replacement cargo had to be purchased at much higher prices. Are you following?
However, early losses amounted to “billions of dollars,” said Alexander Franke, head of risk and trading at Oliver Wyman.
“For most participants, the situation was a surprise. Before the war started, there was a strong conviction in the market that prices would fall, and because of the war, prices rose.”
That’s the whole mess right there. Trade was tilted in one direction, and the war sent oil violently in the other direction.
The Financial Times had previously reported that Vitol, Trafigura and Mercuria had suffered losses in the first days of the war. Some of those losses have since been reversed, but the initial blow was still tough.
Traders with goods already on the water were also hit with a big hit from margin calls when Brent futures jumped. This happened because a short futures position is often used to hedge physical goods. A margin call is not the same as a final loss, but it still forces the trader to deploy a lot of cash very quickly. So, when the price of oil rises, money demand of course quickly becomes bad.
That blow was dealt to an industry that had already cooled after its brutal years. Oliver Wyman said trading firms’ gross profit margins fell to $92 billion last year, the lowest level since 2021 and well below the peak of $145 billion in 2022. Metals trading was the only bright spot, with profits up 20%, while oil desk profits fell 15%, the report said.
Report too He said The industry’s “cost per seat” has risen more than 30% since 2021.
Meanwhile, Oliver Wyman estimated the industry’s future underlying annual profits at between $90 billion and $110 billion, not counting the mountain of geopolitical issues we faced.
Oil prices rose back above $100 as Gulf traffic dried up
By Sunday, the market was looking forward to a new high in oil prices. US crude for May delivery jumped 8% to $104.40 a barrel by press time. Brent crude for June delivery rose more than 7% to $102.51. Prices rose as the US Navy prepared to impose a blockade on Iranian ports after the collapse of peace talks over the weekend.
US Central Command, or CENTCOM, said Sunday that the military would close all maritime traffic entering and exiting Iranian ports on Monday morning. She also said that the United States would not block ships heading to or from non-Iranian ports. Central Command said:
“The blockade will be applied impartially against ships from all countries entering or leaving Iranian ports and coastal areas, including all Iranian ports on the Persian Gulf and the Gulf of Oman.”
Earlier the same day, President Donald Trump threatened to close the Strait of Hormuz after the United States and Iran failed to reach an agreement to end the war during talks in Pakistan. Tehran then conditioned safe passage during the ceasefire on its approval.
Ali Akbar Velayati, a senior advisor to Supreme Leader Mojtaba Khamenei, said on Sunday that “the key to the Strait of Hormuz” remains in the hands of the Islamic Republic, the official Press TV news channel reported.
Shipping data showed how weak traffic was. Only three supertankers made the trip on Saturday, LSEG data showed. Each ship can carry up to two million barrels of oil. Before the war, more than 100 ships a day made this journey. On the diplomatic side, Vice President J.D. Vance, who led the US delegation, said the talks failed because Iran had not made a “positive commitment” that it would not seek a nuclear weapon. He told reporters in Islamabad: “The simple question is: Do we see a basic commitment of will on the part of the Iranians not to develop a nuclear weapon? We have not seen that yet, and we hope that we will.” Iranian Parliament Speaker Mohammad Bagher Qalibaf said that the United States “failed to gain the trust of the Iranian delegation in this round of negotiations.”
