The oil-trading sector is in a state of overhaul as companies realise the need to re-tool operations in response to a market in the grip of structural change
This has been a difficult year for oil traders and trading houses. Benchmark crude futures returned to backwardation after a long period of contango, spelling bad news for those tied into physical storage plays and driving competition for spot crude higher. This competitive environment has forced several organisations to reconsider how their trading desks are structured, disrupting the cyclical nature of hiring activity across the sector.
The traditional summer recruitment lull was nowhere to be seen this year, with the frequency of people moves remaining high in the third quarter and some front-office talent dismissing potential bonuses in order to start 2019 with a clean slate. Management teams have also been deeply affected, with leadership changes or reshuffles seen at almost every big trading house. There are a handful of ways in which change at this level could be interpreted, but many are referring to it as a ‘generation shift’, as trading houses are promoting senior traders into global management roles. Recent examples of such change have been observed at Trafigura, LITASCO and Gunvor.
Oil producers and consumers have found themselves in a position to benefit from the pain felt by the third-party traders, whose profits stem from being the bridge between production and consumption. As the entry barriers to oil trading have lowered in terms of compensation expectations and trading infrastructure, national oil companies, producers and niche consumers have quietly set up and initiated trading operations. Prominent examples of companies following this trend include Saudi Aramco, ADNOC, ExxonMobil, JX Nippon and Tupras.
While trading houses reshuffle talent and producers and consumers take their first steps into trading, well-established global businesses are facing the problem of how to structure their fuel oil and marine gasoil desks in anticipation of the International Maritime Organisation’s IMO 2020 regulation. Under the regulation, seagoing vessels will be required to burn fuel with a maximum sulphur content of 0.5pc, rather than the current maximum of 3.5pc. BP and Trafigura have announced the merging of their fuel oil and marine gasoil businesses, and the wider market consensus is that more consolidation can be expected. This is likely to lead to a surplus of trading talent, but the picture is still unfolding and the effect remains to be seen.
Compensation and benefits have been poignant topics of discussion at established oil businesses, and notably among the top-tier majors. Front-office staff attrition has steadily decreased at organisations including Shell, BP and TOTSA. This has led some to wonder if oil majors are paying too much for traders and not enough in the middle and back offices, where attrition remains high. This phenomenon is raising questions that are tending to divide the market. These questions include whether or not the majors are aware of their value proposition in the market at present, and whether the lack of attrition is preventing the next front-office superstar from rising through the ranks. But perhaps most important from a planning perspective is the question of whether the trading environment being suffered in 2018 is just a blip, rather than an indicator of real and permanent structural change.