Mercuria on oil and blockchain
Marco Dunand, chief executive of Mercuria Group – one of the world's biggest commodities traders – speaks to the FT's Neil Hume about the outlook for the oil market and how blockchain technology could be used in trading.
Produced by Vanessa Kortekaas. Filmed by Steve Ager. Edited by Paolo Pascual.
Mercuria is one of the world's biggest commodity traders. And I'm joined by their chief executive, Marco Dunand. Marco, welcome. You've just reported results, a 10% rise in net income in 2016 to just over $300 million. What's the outlook for 2017 looking like?
I think what's important to notice about last year's result is that, you know, we've had now 13 years of history. And we have been profitable every quarter ever since the inception. I think our return on investment tends to be between 10% and 20% on equity per year. And we were quite pleased with last year's result because we also [? provision an ?] [? important ?] [? amount ?] of money to be cautious about our balance sheet. Going forward, so it's very difficult to predict how the next year will pan out. So, I mean, if you asked me every day, I would think we're never going to make money again. And this is a typical symptom for a trader.
And I think, then, different sources of income come as time goes on. I think we're going to remain in a reasonably volatile environment. It's going to be in a range that is not an enormous range but somehow sufficient to [? bring ?] [? at this ?] [? location. ?] And we have a well-diversified sort of portfolio with the post acquisition of JP Morgan Business in North America. Therefore, we're now involved on a reasonably large scale not just in oil but also on gas and power. And we also have a very strong office in the UK, which is trading gas in Paris.
So I expect us to stay in the typical range we've been involved with over the last few years. And if we can return, you know, between 10% and 20% equity, I think we'll be very happy.
OK. One thing you have done that's very interesting in the past year is with technology digitisation. You did a prototype oil trade-- I think it was the first-- using block-chain technology. What is the opportunity with these sort of technologies for commodity trading?
That's probably the biggest breakthrough or disrupting factor, you know, technology had on our industry. And we see it goes from upstream to downstream shale production and so forth. So a lot of it has been due to technology. But now it's coming and impacting, directly, commodity trading in a sense that, thanks to block-chain technology-- which is an open source, highly secure way of communicating-- we are able to bring more efficiency into a typical commodity chain.
If you take crude oil cargo loading in West Africa and going to Asia, typically it takes about 40 days for the documents, bill of ladings, and so forth to circulate before they come to the end user. We run these tests on a [? piloted ?] basis, and we did it in seven days. We need a more secure way of doing it than through the normal sort of archaic way we've been working so far.
OK. Now, I can't let you go with just asking about the oil price because you do move a lot of barrels of oil around the world each day. How do you see the market at the moment? It looks quite heavy at the moment but, longer term, perhaps?
I think everybody is kind of turning their eyes to OPEC and mostly to Russia, too. OPEC sort of seemed to have brought in a fair amount of discipline and respect of the agreement within an OPEC country to reduce production. The objective is to rebalance the market. I believe [? if ?] [? non-OPEC ?] countries fulfil their promises and if the deal is renewed for the next six months for the second half of the year, you're going to see stocks [? grow ?] coming in the third and fourth quarter, which will help rebalancing the market. And I think that will probably push the market higher into the high $50s. It's difficult to know what Russia will do. And I think a lot of people in the market are just watching and waiting to see what turns out in the next OPEC meeting.
But, longer term, are you positive?
Longer term, I think we're going to see there's a shortage of investment to large projects at the moment. So, therefore, every demand increase seems to be partially met by supply sort of increase coming from shale. This will not be, you know, infinite. So, therefore, I think we could imagine, in the next few years, maybe some kind of difficult situation in the Middle East or a crisis or whatever else. And I think you will then realise it's been a complete lack of investment in larger projects. And, therefore, you could have spikes-- kind of, you know, a pretty volatile spike coming up in the next few years.
And a final, very short question, last year you sold a stake to ChemChina, 30% of the company. Two questions, really-- I mean, will you sell more? And how do you see that relationship developing?
So the relationship has developed quite well. We have been looking for more synergy with the ChemChina group. They have not just a refinery, but they also invested money in other businesses. And we're trying to see whether we can deliver additional value. And we're also looking into how we can strengthen the cooperation and synergy. And we'll have to see in what form that takes place within the next few months.
Marco Dunand, thank you very much.