Energy Trader Vitol Reorganizes Derivatives Team After Losses

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(Bloomberg) — Vitol Group is reorganizing its derivatives team in London, just weeks after the energy trading giant incurred significant mark-to-market losses in the early days of the Iran war, according to people familiar with the matter. 

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Some traders are likely to leave as part of the restructuring, while others will join physical trading teams that focus on individual markets, rather than a centralized derivatives trading structure, the people said, asking not to be identified discussing private information. The decisions are not yet final and are still subject to change. So far the reorganization is limited to the London team, they said.

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It’s not clear whether the planned changes are directly linked to recent performance. However, Vitol’s traders saw large mark-to-market losses after being caught on the wrong side of surging prices at the start of the Middle East conflict, including in jet fuel, other people said.

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Some of the positions were unwound but others remained in place, and Vitol’s derivatives traders have since offset some of the losses.

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Other parts of the company’s business have had a strong performance in the first quarter. Vitol as a whole has made a profit for both March and the first quarter, said a person familiar with the matter.

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The company declined to comment on changes or performance in its derivatives business. 

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While Vitol’s business is primarily focused on the real-world trading, storing and shipping of commodities and energy, the company and its peers are also significant players in derivatives markets, where they hedge the price risk of their physical trades, as well as taking speculative bets. 

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Oil and fuel prices surged after the US and Israel launched attacks on Iran in late February, creating what would become the biggest oil supply shock in history. Singapore jet fuel prices saw one of the most dramatic moves in the first week of the conflict, with values soaring by more than 70%.

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The closure of the Strait of Hormuz has created a chaotic environment for energy traders, as prices spiked and contracted cargoes from the Gulf have been canceled. However, the dislocations have also resulted in the type of conditions that physical commodity traders typically thrive on. 

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The commodity trading industry as a whole saw earnings soar dramatically during the energy crisis that followed Russia’s invasion of Ukraine, and Vitol itself emerged from that period as by far the most profitable trading house in the world. 

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The changes in Vitol’s derivatives team come against the backdrop of a wider changing of the guard among the commodity trader’s senior leadership, including the recently announced departure of long-standing Chief Financial Officer Jeff Dellapina. 

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—With assistance from Nishant Kumar, Jack Farchy and Alfred Cang.

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