Exxon Mobil’s effort to build an energy trading business to compete with those of European oil majors unraveled quickly last year as the firm slashed the unit’s funding amid broader spending cuts, 10 people familiar with the matter told Reuters.
The cuts left Exxon traders without the capital they needed to take full advantage of the volatile oil market, these people said. The coronavirus pandemic sent prices to historic lows – with U.S. oil trading below zero at one point – before a strong rebound. That created an immense profit opportunity for trading operations willing to take on the risk.
Exxon instead systematically avoided risk by pulling most of the capital needed for speculative trades, subjecting most trades to high-level management review, and limiting some traders to working only with longtime Exxon customers, according to interviews with 10 former employees and people familiar with Exxon’s trading operation. Traders were restricted to mostly routine deals intended as a hedge for Exxon’s more traditional crude and fuel sales rather than gambles seeking to maximize profit, four of the people said.
The trading retreat came after Exxon had worked in the previous three years to bolster its trading unit with revamped facilities, high-level hires and new tools to help traders take on more risk. The company’s cautious strategy in the pandemic sparked the exodus of some of those senior-level new recruits, along with Exxon veterans, as the company downsized the department amid broader spending cuts, according to the people familiar with its trading operation.
“They were careful with capital during a period of time when they maybe shouldn’t have,” one trader who left Exxon in the last year said of its management.
Exxon’s trading retreat came as the company overall posted a historic $22.4 billion net loss in 2020. Exxon does not separately report the performance of its trading unit. Reuters was not able to determine the trading department’s overall profit or loss, or the specific reduction it made in capital available for speculative trading.
Some of Exxon’s biggest rivals made enormous trading profits last year as their traders bought oil and stored it when prices plunged, then sold it at higher prices for future delivery. Rival Royal Dutch Shell (RDSa.L) said in March that it doubled its 2020 trading profits to $2.6 billion over the previous year. BP Plc (BP.L)’s trading arm earned about $4 billion, a near record, Reuters reported previously, based on an internal BP presentation. Such profits helped both companies offset massive losses from a collapse in fuel demand and prices as the pandemic curtailed travel worldwide.
Exxon declined to comment on whether it scaled back speculative trading or reduced the department’s capital and staffing. An Exxon spokesman said its trading team continues to have a “broad footprint.”
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