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TotalEnergies is reported to have made more than $1bn (€868m) in profit after buying up oil cargoes across the Middle East as the Iran conflict choked shipping through the Strait of Hormuz, according to the Financial Times.
The French oil giant’s traders purchased around 70 cargoes of crude produced in the United Arab Emirates and Oman available to load in May — more than double its purchases in February — according to a person close to the company cited by the FT.
Total has so far not made any firm public statements regarding this issue and told the FT that it does not comment on its trading activities.
How the benchmark broke
The opportunity arose from a specific disruption to the way Middle Eastern oil is priced.
S&P Global Platts, which runs the Dubai crude benchmark — the main pricing reference for Middle Eastern oil exports to Asia — suspended nominations of crude grades requiring transit through the Strait of Hormuz on 2 March, effective immediately, after major shipping companies halted passage through the waterway amid heightened safety concerns.
Three of the five crude grades normally used to set the benchmark were effectively taken out of play, leaving only Abu Dhabi’s Murban, loaded from Fujairah port, and Oman available for delivery.
Platts said at the time the move cut deliverable crude in the benchmark by about 40%.
With fewer grades in play and liquidity sharply reduced, the market became far more vulnerable to a single player taking a dominant position.
TotalEnergies moved into that gap.
While trading was around 50% more active in March than the previous month, only TotalEnergies secured enough partial contracts to make a whole cargo, according to the FT.
Dubai crude climbed from around $70 a barrel just before the conflict began to an all-time high of around $170 last week. The international benchmark Brent crude peaked at around $120 a barrel in mid-March before easing back to around $113 as of late last week.
‘Dislocated’ markets
TotalEnergies chief executive Patrick Pouyanné has been candid about the scale of the disruption, if not the trading profits.
Speaking to CNBC last week, he said the world had “never experienced” refining margins at their current levels, and described the oil products market as “dislocated.”
He warned that if the conflict continues through the summer, European natural gas prices could hit $40 per million British thermal units — more than double current levels of around $18.
The company’s own disclosures paint a picture of a business simultaneously hit and buoyed by the war.
In a statement published on 13 March, TotalEnergies said production had been shut down or was in the process of shutting down in Qatar, Iraq and offshore UAE, representing around 15% of its total global output.
However, it noted that the Middle East barrels account for only around 10% of upstream cash flow due to higher taxation, and that an $8 per barrel rise in Brent crude was sufficient to offset the lost production entirely.
Asian buyers squeezed
The surge in Dubai crude prices has hit Asian refiners hard. Some have lobbied Saudi Aramco to switch its pricing benchmark from Platts Dubai to ICE Brent, according to Argus.
On 20 March, Platts took a further step to shore up the benchmark, suspending the negative quality adjustment for Murban crude in order to maximise the amount of deliverable oil in the pricing process.
The agency said it had gathered extensive feedback from market participants in support of the move.