Commodity traders typically thrive on periods of high volatility; however, many market participants positioned for price declines and consequently incurred losses, according to the FT. Among these was the company Vitol, which saw a loss amounting to several hundred million dollars.
Major energy traders faced multi-billion dollar setbacks at the start of the conflict with Iran, stemming from an unanticipated sharp surge in energy prices, as reported by the Financial Times (FT), citing data from the consultancy Oliver Wyman.
Although trading firms customarily profit from significant market swings, this time a substantial number of players bet on prices falling, the publication notes. Yet, following the outbreak of hostilities, oil quotations escalated sharply, leading to considerable financial drains.
According to Alexander Francke, head of Risk and Trading at Oliver Wyman, the situation caught most market participants off guard. Prior to the conflict, the market consensus leaned toward falling prices, but the war triggered a spike. Margin calls on Brent crude futures placed additional strain on traders. Companies dealing in physical deliveries typically hedge these using short positions in the market. Experts explain that the price increase necessitated the urgent injection of substantial cash sums to meet margin requirements.
The losses weren’t solely tied to financial instruments but also involved physical fuel shipments. Notably, over 100 tankers became stranded in the Persian Gulf. Firms that had already contracted supplies at fixed rates were subsequently forced to procure replacement volumes at considerably higher spot prices, the FT observes.
Oliver Wyman suggests that the current elevated volatility may lead to expanding trading margins going forward, though it remains premature to determine if the sector’s profits can match 2022 levels, a year when the energy crisis generated record earnings.
As The Wall Street Journal indicated, Vitol, one of the world’s largest commodity trading houses, is among the firms most severely impacted by the war with Iran. It forfeited hundreds of millions early in the conflict after its bets on the oil market collapsed. Among its unsuccessful wagers were predictions regarding the price spread between diesel and jet fuel, as well as hedging the price of Dubai crude relative to Brent.
The day after U.S. President Donald Trump announced a halt to strikes on Iranian energy infrastructure, the White House issued an internal memo cautioning staff against leveraging their official positions for trading on futures markets, the WSJ found out. Data from Dow Jones Market Data revealed that in less than two minutes following the ceasefire announcement, oil futures transactions exceeding $760 million were executed.
Physical oil prices across Europe and Africa hit unprecedented highs, despite futures markets declining after the U.S.-Iran truce on April 8th. Specifically, the price for a barrel of Forties North Sea crude reached an all-time peak of $146.43 on Thursday. Conversely, Brent and WTI futures dropped by 13% and 16% respectively, settling below $100 per barrel. The potential reopening of shipping lanes through the Strait of Hormuz was the primary catalyst for this movement.
In contrast, a contingent of traders netted approximately $600,000 on the Polymarket prediction crypto market by wagering on a Middle East ceasefire. These same accounts had previously secured $1.2 million by correctly forecasting a U.S. strike against Iran on February 28th.
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