Mercuria revenues have hit $47bn
By Javier Blas
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Below are 2 articles published in the Financial Times on 21st December 2009,the first one is about Mercuria and the second features Mercuria.
FINANCIAL TIMES
21 December 2009
COMPANIES - INTERNATIONAL
Mercuria revenues have hit $47bn
By Javier Blas
Copyright 2009 The Financial Times Ltd. All rights reserved. Please do not cut and paste FT articles and redistribute by email or post to the web.
PROFILE
Marco Dunand was anxious when he signed a contract for office space for the oil trading company he was forming. "I was nervous about a two-year contract," he says. "I thought it was too much space."
Five years later, Mr Dunand's worries have proved misplaced as Mercuria joins the ranks of the world's leading oil traders - and moves to a bigger head office. "We did not foresee the success that we have had," he says.
The trading house was born in 2004 as Mr Dunand and his business partner Daniel Jaeggi bought a 30 per cent stake in J+S, a little-known trader founded in 1993 whose main business was a contract to supply crude oil to two refineries in Poland.
After a five-year make-over, the company today ranks as the fifth-largest independent oil trader, moving about 1.5m barrels a day of crude and oil products, more than some members of the Opec oil cartel. "We started five years ago with a group of 10 people," Mr Dunand says.
"Today we have 25 offices across the globe and experienced trading teams of more than 350 people."
Mercuria had revenues of just $6bn in 2004, a figure that last year jumped to $47bn. Trading commodities is a business of large volumes but small profits and the privately held company does not disclose its financial performance.
Rivals say Mercuria has benefited in particular from a great knowledge of the Chinese market.
Mr Dunand's and Mr Jaeggi's careers have run almost in parallel. The two went straight from Geneva University in the 1970s to Cargill, the world's largest trader of agriculture commodities.
"Cargill was like an MBA," they say. After years in London at Goldman Sachs and Phibro - the commodities trader sold by Citigroup to Occidental Petroleum - in the 1990s they joined Sempra, the San Diego energy group, where they built the European-based energy business from scratch.
In 2004, they moved back to Geneva to start their own company. After five years of strong growth, Mercuria is now in a further expansion phase, moving outside its comfort zone of crude oil to enter into natural gas, power, coal and emissions.
Mr Jaeggi says the expansion reflects the belief that several energy markets are integrating. The liquids market, gas market, power market, coal market were, to a large extent, "de-correlated from each other," he says. "We believe that the future is a convergence of all of these markets."
FINANCIAL TIMES
21 December 2009
COMPANIES - INTERNATIONAL
Record year for top five crude traders
By Javier Blas, Commodities Correspondent
Copyright 2009 The Financial Times Ltd. All rights reserved. Please do not cut and paste FT articles and redistribute by email or post to the web.
News analysis
Oil trading houses have made the most of volatile market conditions, writes Javier Blas
To an outsider, its looks like the oil market endured a terrible year: low and volatile prices, surging inventories combined with the impact of the credit crunch.
But those very factors have benefited the world's largest oil trading houses, which are set to reap bumper profits. Bankers estimate the five largest - Vitol, Glencore, Trafigura, Gunvor and Mercuria - are likely to earn between $3.5bn and $4bn in total, making 2009 their best year.
The big traders themselves are more coy. "We had a very good year," says Marco Dunand, chairman of Mercuria. Pierre Lorinet, chief financial officer at Trafigura, says: "Business has being good."
The publicity-shy companies dominate oil flows. They jointly trade 15 per cent per cent of the world's crude and oil products output, equal to the combined oil production of Iran, Iraq, Kuwait, United Arab Emirates and Venezuela.
Vitol is by far the largest, moving about 5.5m barrels a day - equivalent to the daily imports of Germany, France and Italy combined. Those huge quantities of oil mean the trader has more in common with the operations of BP or Shell than with its smaller rivals.
In rare interviews with the Financial Times, leading executives from some of the top five traders, reveal that this year's bumper earnings were all secured in the first half, while the second half has been lacklustre.
The trading houses have made large sums of money on the back of volatile oil prices, which moved from January's low of $32.70 to a year high of $82 in October. The volatility allowed traders to arbitrage.
In addition, the oil price curve has being inverted all year, with spot oil trading at hefty discount to forward-dated contracts. The condition, known as contango, allowed traders to arbitrage physical barrels - buying oil and putting it into storage while, at the same time, selling a forward derivative contract to lock in a profit.
"The contango, which reflected weak demand and the fact that supply was not reduced, effectively, until the middle of the year, gave all the industry an opportunity to make good returns," says Ian Taylor, Vitol's chief executive.
The traders stored as much oil as they could onshore, boosting the revenues of storage companies such as Rotterdam-based Vopak or Houston-based Kinder Morgan. When these reservoirs reached their capacity, they moved offshore, using oil tankers.
The difference between the price of West Texas Intermediate oil for immediate delivery and the one-year forward contract - a key indicator - widened to a record $21.50 a barrel in January. Since then, the contango has narrowed in oil but it is still open in diesel. Traders believe they will be able to profit from opportunities in both commodities next year. Daniel Jaeggi, co-head of Mercuria, says the market will "probably see contangos persist for a while since stocks are high and [oil demand] growth is likely to be somewhat anaemic".
The financial crisis, which hit bank's commodities business, benefited the traders. "Less competition meant higher margins this year and better terms in oil tenders," says Mr Lorinet.
The trading houses' executives warn, nonetheless, against expecting a repetition of this year's opportunities in 2010. But there will be some self-inflected damage: the five are expanding and unlike previous years, when they were able to gain market share easily because of booming oil demand, this time they will fight against each other for new markets.
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