Glencore Sees ‘Blowout’ Year for Oil Trade as Volatility Surges

By Andy Hoffman and Angelina Rascouet

(Bloomberg) — Glencore Plc, the world’s greatest listed commodities dealer, mentioned 2015 might be a growth yr for oil amid the largest value swings in six years.

“It is looking very well structured for oil trading,” Chief Executive Officer Ivan Glasenberg mentioned in a convention name with analysts Tuesday. “If it continues like this, oil could have a blow-out year.”

Volatility in Brent crude rose to the best since 2009 final month, creating larger gaps between costs that merchants have to make a revenue. Crude oil plunged 61 p.c from June to January due to oversupply, earlier than paring a few of that droop. Glencore, primarily based in Baar, Switzerland, and Vitol Group, the most important impartial dealer, will profit from larger value swings in 2015, mentioned Fitch Ratings Ltd., a supplier of monetary data.

The elevated volatility stems from the best U.S. crude output in three a long time mixed with sustained manufacturing from OPEC, which pumps about 40 p.c of world provide and beforehand curbed output to stability the market. Qatar estimated the glut was as excessive as 2 million barrels a day.

“Volatility is likely to remain in the market throughout 2015, before oil recovers and the market finds an equilibrium,” Dmitry Marinchenko, an analyst at Fitch, wrote in an e-mailed report Tuesday. “We therefore believe oil traders’ earnings will grow significantly” within the second half of this yr in contrast with the previous two years.

No Contango

The value droop additionally prompted merchants to ebook dozens of tankers with a view to storing cargoes. Companies seem like dropping these trades, mentioned Alex Beard, the pinnacle of Glencore’s oil enterprise.

“There were lots of reports of floating storage a few weeks ago,” Beard mentioned on the identical convention name. “Some of those vessels have been dropped. Some of them are being used in the normal market.”

Companies booked tankers with the capability to retailer as many as 65 million barrels on 34 ships, based on knowledge compiled by Bloomberg on Feb. 13. The commerce turns into viable when future costs are thus far above rapid ones that merchants can greater than cowl all the prices related to retaining crude on vessels.

Vitol Chief Executive Officer Ian Taylor mentioned on Feb. 10 that for merchants hoping to revenue from the contango “that window is now shut.”

Brent crude oil for July prices $2.46 a barrel greater than provides in April, based on knowledge from the ICE Futures Europe trade. The hole expanded to $4.24 on Feb. 12. The prices related to storing in Europe for 3 months had been about $4.70 at the moment, based on knowledge from E.A. Gibson Shipbrokers Ltd.

“The super contango and the super profit in the crude oil market is just not there at the moment,” Beard mentioned. “When you see current spread conditions, they are attractive. They pay for land-based storage and a small profit on top of that. They are by no means, at current spread levels, attractive enough to encourage large amounts of floating storage.”

–With help from Sherry Su and Grant Smith in London.