Massive trading floors that mirror those of Wall Street’s biggest banks are becoming increasingly important to the oil companies, which are driven by fears that global oil demand could start to drop in the next few years as climate change concerns reshape society’s — and investors’ — attitudes toward fossil fuel producers. No longer looked down upon as handmaidens to the engineers who built Big Oil, the traders are increasingly being seen as their companies’ saviors. The brightest stars can make more than $10 million a year, outstripping their bosses.
One reason profits are so high is because the three companies can reduce their trading tax bill by routing their business through low-tax jurisdictions—a strategy not available to their oil pumping and refining businesses, which are rooted in physical infrastructure in particular countries. Shell, for example, concentrates all its trading of West African and Latin American crude via a subsidiary in the Bahamas. With just 36 traders in Nassau, Shell reported profits in the Bahamas of $847.5 million in 2019. Yet it didn’t pay a single dollar in taxes on those gains.
Javier Blas & Jack Farchy
Big Tech are not the only companies profiting from tax havens and international legislation loopholes, to the detriment of wider public.
The pandemic, an unprecedented crisis for most people, provided an excellent opportunity for oil companies to profit from their privileged market position – one might even call this insider trading.
In early 2020, before air travel shrank, Shell’s traders tweaked Pernis’s production, cutting out jet fuel entirely while increasing output of other refined products. Shell still had contracts to supply jet fuel, however, so the company was left with a big short position: It would have to buy jet fuel in the market to deliver to its customers, whatever the price, if the company’s traders were wrong about the pandemic. If the price went up, Shell stood to lose millions.
Of course, the traders weren’t wrong. Jet fuel demand soon plunged 90% in northwestern Europe. Across Europe, prices fell from $666 a ton at the beginning of the year to $125 a ton by late April.
We could buy jet fuel, make money on that particular trade, and then again reconstitute the products coming out of the refinery to make money elsewhere, Shell’s van Beurden explained in an earnings call with investors in July.That’s no ordinary trading. That is actually optimizing market positions that we know better than anybody how to take advantage of.Shell didn’t disclose how much money it made on that single trade, but people familiar with the company said that in just the second quarter of 2020, the jet fuel traders made as much as they usually do in a whole year.
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