The crowd gasped as the brokers swung wooden mallets onto the lid of the sake barrel and cracked it open. “Everyone please give them a hand,” said the MC, and the liquor went round. The party was hosted by BGC Group, a U.S.-listed brokerage whose fortunes have boomed since the Iran war upended global energy markets.
Rory Jones and Rebecca Feng report from Singapore in Friday’s Journal, and the piece is doing something more useful than schadenfreude. It is showing, concretely, where the money that consumers are paying at the pump has gone.
The arithmetic of a dislocation
“What we’ve seen this year is the biggest crude-oil supply disruption in history,” said Jim Burkhard, head of crude-oil research at S&P Global Energy. “When you have big dislocations like this, there’s going to be opportunities.”
They are itemized. Abu Dhabi National Oil Co.’s maritime logistics arm reported a second-quarter net profit of $951 million, a fourfold increase on the year, largely by running “shuttle runs” that move crude out past the Strait of Hormuz. Trafigura reported a 173% year-over-year surge in net profit for the six months to March 31. Mercuria’s unaudited profits for the nine months to June rose 122%. Shipping did the same: sailing a supertanker from Oman to South Korea topped $572,000 a day in mid-September, more than double February’s rate, according to Clarksons Research.
Brokers do well for a structural reason rather than a directional one. When physical supply is disrupted, buyers of jet fuel, diesel and gasoline — airlines, refiners, haulers — have to hedge, and hedging means transactions, and transactions mean commissions. Volatility is the product.
The trade of the year
The most instructive story in the piece is TotalEnergies’. Its oil trading business watched the U.S. Navy amassing near the Persian Gulf at the end of February, just before the U.S. and Israel began their attack, and bought oil with debt while the market was saying oil was going down. Chief executive Patrick Pouyanné described it to shareholders in May: “they took a position that wasn’t an easy one to take.” In July the company said crude and products trading delivered $500 million of “overperformance” in the second quarter alone.
That is a professional trading desk taking a geopolitical view with borrowed money and being right. It is worth admiring and it is worth being clear about: nothing about that process is available to, or appropriate for, a household portfolio.
Our read
There is a genuine planning lesson buried in the sashimi and the $600,000 golf memberships, and it is not about oil.
Every large price shock is a transfer. Consumers pay more for fuel; producers, shippers, refiners and brokers collect it. That is not a moral claim, it is an accounting identity. The question a diversified portfolio is built to answer is which side of that transfer a household sits on — and the honest answer for most people is: the paying side, heavily, through fuel, freight, groceries, airfares and utility bills, with no offsetting position at all.
That is the entire argument for holding an energy sleeve in a portfolio that otherwise has no reason to want one. Exxon Mobil (XOM), Chevron (CVX), Cheniere Energy (LNG) and Valero (VLO) are not held here because this desk has a view on the war. They are held because a household’s cost of living is short energy whether it wants to be or not, and owning a little of the other side of that trade turns a one-way exposure into something closer to a hedge.
President Trump has criticized U.S. energy companies for making too much money from the war, which is why attendees in Singapore were wary of advertising their year. The portfolio version of that observation is unsentimental: if the profits are being made somewhere, the question is whether you own any of it.