Trafigura on oil outlook
The FT's Neil Hume speaks to Jeremy Weir, chief executive of Trafigura – one of the world's biggest oil traders – about the outlook for the market and the price of oil.
Produced by Vanessa Kortekaas. Filmed and edited by Steve Ager.
Welcome to the FT Commodities Global Summit 2017. I'm joined by Jeremy Weir, the chief executive of Trafigura, which is one of the world's biggest oil traders. The company has seen strong growth in trading volumes over the past couple of years. I think you've risen from 2.5 million in 2014 to over 5 million at the moment. Can you give us an idea of what's been driving that? And can it continue?
The main driver has been, firstly, market conditions require generous, but more importantly, in a trading company, we're a service industry. And the approach that I believe that we have in our business [INAUDIBLE] is to align ourselves with our customer base, understand what their needs are, and then having a global footprint to capitalise on the various opportunities that exist in the marketplace to provide the service, to provide the best sales price for the producers or the best purchase price for the consumers, and ensuring that the consumers get their barrels on time. And so therefore, I believe that we are well-positioned to continue that growth, albeit, alongside with international growth in oil consumption.
Just another question just about the outlook. 2016 was a good year for yourselves and the industry as a whole. But some of the market conditions that helped boost profits, things like storage trades perhaps, aren't as obvious now as they were 12 months ago. Does that mean 2017 is going to be a tough year? Or are there other parts of your business that will compensate for those trades perhaps not being there?
Look, I think oil trading isn't just about carry trades-- contango plays. You have a diversified business, and the idea is to, if you like, see what the global market is doing, having the global footprint to ensure that you can capitalise on differences. For example, we're one of the largest or, actually the largest, exporter of crude out of the US.
China has been a large consumer of oil and also an exporter of refined product, and we have moved some barrels into the US. So looking at those, if you like, unnatural flows and capitalise on the differences in the marketplace are very important. I should also add we're a diversified business. We're an oil trader, but also our minerals and metals business as well, which has shown significant growth. And it's been, particularly this year, a very large contributor to our bottom line.
You handle 5 billion barrels of oil a day. That makes you one of the biggest oil traders in the world. Do you have a strong feeling on the direction of prices this year or whether the market might come back into balance? How do you see it?
I think we are fairly agnostic on price from a business point of view, if you look at our P&L over the years, it's not related to price more to volatility. That being said, we do see at the moment an oversupply of crude. We're seeing a supply response out of the US, although we're starting to see a good draw on refined products, so the market will rebalance.
In the short term, I should say, we expect prices to remain around current levels or in a fairly narrow range. But longer term, even despite the increase in US production and the low cost base out of US production, you're going to still, on a global basis, need to feed increased demand and depleting production.
And by doing so, you're going to have to have a reasonably high price to attract capital to invest in that industry. So we expect the longer term prices to be higher than where they currently are.
Just another company-specific question-- your relationship with Rosneft has helped the company grow significantly over the last couple of years. You signed a deal last year with Rosneft to buy a stake in Essar, the Indian oil group. Could you tell us a bit more about that deal and how is it benefiting traffic Trafigura going forward?
The Vadinar refinery is a world-class refinery. Trafigura will be a 24% shareholder alongside Rosneft and the Russian-based fund UCP. This refinery, as I said, state-of-the-art refinery. It is very well located, not only for the growing Indian economy, which we're very positive on a long-term basis, because it does come with a very large distribution network.
But it's also a very well placed for international trade. And if you like, from that perspective, we can source barrels for many different locations. And it's a natural fit to a trading business capitalising on the growth of the Indian market as well.
One final question-- one of the biggest stories of the year is the spread of populist politics across the world, and their backlash against globalisation. Indeed, we're seeing President Trump perceive what he calls an American first economic policy. Are these forces a positive or perhaps a negative for your business? Will they throw up opportunities?
Look, I think global trade will always be there. And global trade will generally increase as demand in global GDP grows. That being said, with potential trade barriers in the border tax being implemented, it will change natural flows. And it will change the economics, for example, of US refiners.
From our perspective, those changes of flows is something we often identify early. We'll create probably natural flows of business and increase volatility. In that sort of environment, that is something which a trading company, if you're on your game, you can really capitalise upon.
Thank you very much.
Thank you, Neil.