October 29, 2025 • 40 mins
Some of the world’s largest companies by revenue – such as Vitol, Trafigura, and Cargill – operate outside the public eye, trading oil, metals and grains at scale. These private firms have quietly become central to global supply chains, recording substantial profits since 2022 as wars and sanctions re-routed flows.
Giovanni Serio, former global head of research at Vitol, joins John and Katia to unpack how commodity traders operate, why scale and flexibility matter, and how satellite data and real-time analytics have transformed market transparency. Serio also discusses oil price dynamics, the rise of non-OPEC supply, and why most trading firms remain private despite their size.
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Episode Transcript
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Speaker 1 (00:00):
Vitol, Cargill, and Traffigura are among the world's fifty biggest
companies and you probably haven't heard of them. They buy
and sell commodities like oil, grains, metals, and they do
it at scale, with annual turnover in the hundreds of
billions of dollars by revenue. They're bigger than Ford Bank
(00:21):
of America, among other household names.
Speaker 2 (00:24):
But these commodity trades aren't publicly listed, with a few exceptions,
and they don't make headlines often and they prefer it
that way. So how have commodity trades managed to expand
so quickly to form a key part of global trade,
How have companies like Vito managed to dominate certain commodities?
And what risks does renewable energy and the shifting geoplul
(00:47):
landscape pose.
Speaker 1 (00:49):
Joining us today is Giovanni Serdio, a twenty year veteran
of the commodity trading industry, and up until recently he
was the global head of research at Vitol. He since
retired and joins us from Singapore. Thank you so much
for being here.
Speaker 3 (01:02):
Thank you for having me guys.
Speaker 2 (01:04):
Giovanni, as Katya mentioned, you were the head of research
at Vito. The world's largest independent energy trader and one
of the largest companies in the world. You had some
experience at Noble Group as well, once a major commodity
trading house, so I've had a long run at these
commodity trading firms. What exactly do these firms do?
Speaker 3 (01:25):
In general? Trading houses and commodity traders are large traders.
They buy and sell commodities, they distribute it globally, they
store it, and they transform it to what is necessary.
So the way we like to think about the business
of trading houses is trading commodities in space, time and
(01:46):
in quality. And that is reflected by the fact that
most of them are not producers, are not consumers. They
can benefit and have a business that can thrive in
bull markets or bare markets, but effectively trade the relative
prices rather than what we call flat prices. So they
(02:07):
would benefit when prices oil or commodity prices are high
or where they are low. The key is to manage
the supply chains.
Speaker 4 (02:15):
What does it actually look like physically?
Speaker 1 (02:17):
You know, people might get an image of decades ago
sort of a commodity clearing houses. This is not it.
I mean, is this people sitting at computers, is this
AI like, what does it look like?
Speaker 3 (02:30):
The market has definitely seen in the dramatic increase in
the use of data. It is still a physical business.
It requires physical infrastructure, and again most of the physical
infrastructure is in the logistics chain. It still requires a
big storage capacity because when prices are low, many of
(02:51):
these companies are incentivized to store the commodity. It requires
blending facility or transformation. To transform commodity between one and
the other requires quite a heavy reliance on logistics infrastructure,
including shipping, so many of the big names still need
a fair amount of transportation capacity. Having said that, what
(03:13):
has grown in the past few years is also the
ability or the capacity to elaborate treat to analyze data.
Because the market used to be twenty years ago when
I started my career, a very opaque market where physical
players could take advantage of the informational advantage they had
(03:35):
over other players. And in the last twenty years instead
there's been a dramatic increase in the availability of data.
So these days there are a lot more computers, a
lot more multiple screens, a lot more data scientists in
trading houses than what they used to be.
Speaker 2 (03:51):
For sure, But if I could ask a big broad question,
why do we need commodity trading companies? Like I thought
that someone like Saudi or Ramco or BHP or Show
would just sell their commodities straight to the customers.
Speaker 3 (04:06):
Well. Originally the idea of an independent training house because obviously,
as you mentioned there are a lot of trading desks
that are sitting with the old major was the fact
of being able to transport, sell, and transform commodities without
the conflict of interest with the clients. So they are
marketing agents. They go and have and off take an
(04:28):
agreement with the let's say small independent share producers in
the US. They can sell to let's say tip of
refineries in China. They can sell everywhere in the world.
They don't have a conflict with their clients because they're
not big producers, they are not big consumers. They generally
try to make a bigger margins out of the buying
and selling and therefore to be as efficient as possible
(04:50):
in the logistics. And they have the flexibility that many
of the oil majors that are stuck with their oil,
with their systems, with their infrastructure don't have. So they
can move quite fast in adjusting to changing in trade flows,
in production locations or qualities. An example is obviously in
(05:15):
the last few years there's been an increasing use of
sanctions and there's been a big change in trade flows.
Just think about the Russian flow. They used to go
to Europe with one or two days of travel that
now they have to go around China. There is a
fundamental change to the way the trade flows is there
(05:36):
and that has a lot of knock on effect in
the sense the buyers in Europe had to source their
oil and gas from a different sources and having an
independent marketer that can jump in without having legacy systems
or oil or gas and can provide the level of
(05:56):
flexibility as become in fact even more important the word
it was originally ten years ago.
Speaker 4 (06:02):
Yeah, and there's other changes too, right, So companies like
Vito have actually through subsidiaries of course, but they've gotten
into exploration and development as well.
Speaker 3 (06:11):
Right, Yes, So the landscape has become more competitive and
that means that, as you guys mentioned, when you have
oil companies that are setting up there trading desks, when
you have also been consumers whether it is utilities or
refineries that have big desks, there is a lot more competition,
(06:32):
and that means that there's been also a push from
independent trading houses to own a part of the supply
chain that goes a bit more upstream and a bit
more downstream. But still, if you think of the volumes
these big trading houses have compared to their upstream presence
or their ownership of refineries, is still very small. So
(06:56):
it's definitely the response to a more competitive landscape, to
the higher competition from producers. But the core of the
business is still fundamentally trading. And I can tell you
from my experience when I was running the Oil Analytics MVP,
this is fundamentally different a business a trading business. The
(07:16):
sit in a big producer and a trading business that
is entirely independent. And this is not only the conflict
of interest that I was mentioning to you before, but
it is a proper culture. In the trading business, the
main focus is how to have strong marketing margins, how
to optimize the flows. In a producer business, the main
(07:40):
focus is how to keep production high, steady, low cost.
Is much more an engineering effort rather than a logistic
optimization effort, And as an analyst, I could completely see
that the very different environment between an oil major trading
desk and independent trading.
Speaker 4 (08:00):
Could we unpack that culture a little bit.
Speaker 1 (08:03):
You had just said that it has to do with
optimized Yeah, could we unpack the culture just a little
bit and what you meant there.
Speaker 3 (08:11):
Yeah, So in a big oil major, the focus has
to be stability, production has to be safety, security or
production long term presence in the oil space, and the
trading is still seen as a way to help that
main focus that is still production and refining. And so
(08:32):
that means inevitably that that is priority given to investment
in upstream, priority given to investment in the asset. So
is an asset heavy business. The trading business tends to
be asset light. The assets are really in logistics and
the assets that are owned are functional to the trading.
(08:54):
So when a trading house decide to buy assets, whether
it is pipeline, storage, ship or even upstream or even downstream,
the question is always how it can improve the trading
and the marketing for their clients. So that's the difference
in culture. It's the assets they are functional to trading
in the trading house, and instead the assets that they
(09:15):
are the central of the business model.
Speaker 2 (09:17):
In oil majors, and these traders at the trading firms
are much more into the culture. There much more like
risk taking, an opportunistic like what you might find on
Wall Street correct versus say like a producer.
Speaker 3 (09:30):
Well, the traders per se are the same. If you
look at the traders the vital they are mostly our
xbp X shel X majors. There are a lot of
x vvls in other places. Are the all change. The
trading desk per se is very similar. The difference is
the business model. Traders in big ol majors trade the
(09:52):
oil that comes or the goes to their assets, so
they tend to optimize their assets. Their job is to
make sure that the product produce used by their refineries
and the oil that is produced by oil field is
sold and the feedstock is sourced efficially. Independent traders and
therefore traders they work for. Independent traders don't have that
kind of a task, they don't have that kind of
(10:15):
objective and therefore, yes, there is more flexibility they can
buy and sell, but also means that often not all
traders are successful when they move from a asset centric
business model like oil majors into a training house. Because
you are right to the extent that every trading in
a training house has to wake up every morning to
(10:36):
figure out where are the opportunities and i'll to spend
their time. There is at a bit closer to Wall
Street in that respect than to a industrial operation like
an oil major.
Speaker 2 (10:47):
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(11:09):
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Speaker 1 (11:14):
One thing that some listeners may be surprised to learn
is just how much money is in this business. And
you touched on that very briefly there sort of the
Wall Street similarities. For me, it was interesting to learn.
You know, it's not real estate, it's not banking or infrastructure,
but there's just so much in terms of the ownership
of assets and also how much you know, people get paid.
(11:35):
So just a quick stat for our listeners so the
top thirteen employee partners at glen Core were collectively worth
about twenty nine billion dollars. Now, it's back in twenty eleven,
that's when the company was going public and disclosed the information,
and the IPO minted seven billionaires. It's pretty incredible. And
that's according to my colleague Lavier Blast. He's a Bloomberg
(11:57):
reporter and he wrote a book called The World for Sale. Well,
so why is our question? Why is there so much
money in this space?
Speaker 3 (12:08):
You guys mentioned it at the beginning, at the ranking
of private companies, for example, in the world, you see
that at the top there are always commodity traders. There
are two reasons. You need scale for this business. So
the revenue of these commodity traders is quite high. You
need scale. It's very difficult to survive in a business
that are very low margins. By definition is a business
(12:31):
that has maybe one percent marginal revenue. Two percent marginal
revenue is their commodity is they are not very differentiated
as products. You need scale. So they tend to be
very big players that move a lot of material in
the world, and therefore the revenue are very high. But
also the profits tend to be high because of the
scale of the business. The second thing is that the
(12:55):
profitability really depends on the challenge is on the supply chain. Globally,
there are periods and the last couple of years I
would say from twenty twenty one, maybe twenty two, twenty three,
twenty four been the best years for the commodity trading business.
But why so, it's difficult to remember the bad years,
(13:17):
but there have been a lot of bad years right.
Why has been particularly attractive the proposition of trading in
the last few years because there's been a revolution, a
big change, structural change in the direction of flows of
commodities around the world. Normally, this happens because you find
the commodities in different parts of the world, and then
there is the demand centers there are very far from
(13:39):
where you have the producers and you need to bridge
that gap. That's our cyclical When you are big commodity cycles,
you have this tendency to build infrastructure to move the
commodity around. This time around has been a fundamental shift
linked to the change in geopolitical balance around the world,
with Russia Ukraine in war. What has been escalating is
(14:03):
the regime of sanctions, the implicit or explosien sanctions, the
challenges in transporting commodities around the world. This has increased
the role of traders that have bigger margins, but also
they are serving a bigger purpose. If you think about
the fact that Europe managed to effectually get completely rid
(14:24):
of their dependence to Russia as far as oil is concerned,
and the vast majority of gas is concerned, just relying
on seaborn oil and gas coming from different parts of
the world, and therefore Europe managed to avoid the sleeper
recession out of the Ukraine War exactly because of the
ability to transport and source the commodity from different areas.
(14:48):
You see how bigger role the traders. So if you
combined factively scale high volumes, the fact that there's been
a significant change in the need for more trading in
the current environment, you can justify the high margins and
high profits.
Speaker 1 (15:04):
You mentioned that the demand for traders has gone up
as well in the past few years. What's behind that?
Why is demand increased.
Speaker 3 (15:13):
Because the flows and the supply chain in commodity has
been significantly disrupted by wars and sanctions. So think about
the sanctions for example, right now you have fourteen to
fifteen percent of world production in the world that is Action, Russia, Venezuela, Iran.
There are all kind of very big producers. You need
(15:38):
to reroot trading of commodities to accommodate sanctions, to accommodate
your political risks, and that requires a bigger role for traders.
How does that materialize? How does that translate into profits? Well,
geographical ARBs. The price for gas in Europe and for
(16:02):
oil in Europe after the Ukraine War has significantly increased
relative to the US or relatively to Asia. That creates
an arbitrage. There is a different in prices between two
geographical locations, and that is where trading is needed. You
need the traders that take oil source gas to be
(16:22):
delivered into the region with higher prices, and these create margins,
create profits, but also helps the optimization of the logistics.
Does that make sense.
Speaker 2 (16:33):
Yes, So you made an interesting point. So companies like
Vito made record profits during that twenty twenty one twenty
two twenty three period, not because so much like Brent
or WTI, prices went up, but because there was a
big disruption in the global supply chain.
Speaker 3 (16:50):
Absolutely so, trading houses as I mentioned they are not
producers or consumers, so they really benefit from relative prices.
And so you saw something like gazwell cracks. Things that
maybe not all of your audience that would be aware
of is the difference between diesel or gazwel prices and
crude wil prices that exploded to unpresidential levels, and that
(17:15):
is where the relative prices volatility incentivized more trading and
ultimately translate into profits. And again, geographical arb exploded. So
it's really if you look into the detail of the
disruptions in twenty twenty two and twenty three, they were
not global total supplied demand disruptions. There were relative disruptions
(17:40):
in geography and quality of the commodities.
Speaker 1 (17:44):
Kind of leads to a question that I've been thinking about. So,
you know, you've been in the industry for a while,
so you've probably heard this criticism. But this exact thing
we're talking about that has led to record profits for
these companies is also because of directly because of this
geopolitical instability and a lot of just suffering that people
(18:06):
go through in these countries. I wonder what you would
say to that kind of criticism that these companies are
somehow taking advantage of the situation or in some cases
even flouting rules.
Speaker 3 (18:19):
Well, again, if you are operated at the level of scale,
your compliance department has to do a big job because
you have to respect every sanction, So you have to
respect every rule. There have been a growing of smaller
trading houses that have been thriving because there were trading
sanction barrels section oil. That is not the case for
(18:40):
the big oil traders. They are European American trading houses.
They need to follow the sanctions. So clearly that is
a big focus in trying to focus on the sanction.
But what would I will flip the argument to highlight
how some countries in particularly Europe managed to avoid the
steep recession despite being cut from the main supplier of
(19:04):
gas and oil. That is something that man in the
market would have not believe they known the scale of
disruptions of oil, and that is thanks to trading. So
a lot of people clearly that suffered from high energy
prices at the same time managed to avoid worse consequences
(19:27):
because replacement molecules were found and delivered. So again you
might argue that the margins were high, that the profits
were high, but at the same time, the impact on
the economy was absolutely tangible, visible, and that is the
(19:48):
way the market responds to these kind of incentives.
Speaker 2 (19:52):
Giovanni, I wanted to get back to what we discussed
at the beginning of this episode. You mentioned the impact
of technology. Now, you've been recent arching the oil markets
for many years at VTA but also at Nobook Group,
and you also did stint at like Goldman Sachs and
Italy's Central Bank. But tell us like, how has technology
in particular things like you know, big data satellites impacted
(20:15):
your analysis of the energy markets.
Speaker 3 (20:18):
Yeah, that is a I would say proper revolution and
commodities market and energy market in the last twenty years.
And the revolution is the growth in data. So the
extent to which technology has managed to make a market
that is traditional opaque to a market that is way
more transparent than what it was twenty years ago. If
(20:39):
I think about the beginning of my career as an analyst,
I started Gommber that I went to VP. The name
of the game was to find data, to make sure
that you can through internal sources in a big oil
major or through other sources to find data that could
tell you or how strong is demand, how big production is,
(20:59):
and so forth. Now, the job of most analysts is
to filter data. There is way more data than what
is possible to appreciate, and so most of our colleagues
in a trading desk are trying to filter bad data
from new data, from good data and try to make sense.
Speaker 4 (21:17):
Of where does it going to come from?
Speaker 3 (21:18):
You. So examples, very visible examples are ship tracking. Now
every ship that transports commodities can be tracked in real
time on a mapp in a trader desktop, and you
can track wheny loaded, how deep the drafte is, so
how loaded it is, if it's full of if it's not.
(21:39):
You can see the destination or estimate the destination through
previous routes. And that is available to everybody in every
desk and even to not professional investors because it is
a service that is provided by company storage capacity and
storage levels. Through satellite you can estimate on a daily
(22:01):
basis how much crude oil is stored in China, in Europe,
in the US, and that changes all the time.
Speaker 1 (22:08):
How do you see that from a satellite image? How
do you see that?
Speaker 3 (22:11):
How do you tell I can tell you that we
spend a lot of time at least I would say
five to ten years ago to develop algorithm that from
the shadow of the floating roofs of this facility can
tell you also when there are clouds. So through infrared
technology from satellite can translate into how deep it is.
(22:35):
So most of the crude oil storage facilities have a
roof that goes down that is empty and up when
it's full, and that allows you to estimate and you
know at the beginning we're very rough. Now they are
quite accurate how full they are. I'll give another example.
Most refineries, at least in western countries have now an
infrared camera that is outside their facilities and they can
(22:59):
monitor thattivity minute by minute when there is a problem
with a refinery, as an analyst or as a trader,
you can just click on a button and see the
infrared imagery and the translation of what it means in
terms of activity. So flaring of gas in the refinery
typically signals a problem in the refineries. Are potential maintenance
(23:21):
coming or potential disruption coming. You can monitor when your
refinery come online. Through satellite imagery, you can monitor what
is the size of the crew in a shale oil
field to tell you whether they are really increasing production
or not. These are all data that were absolutely unimaginable
ten years, twenty years ago, and that is has increased
(23:43):
the demand for analysts like Move obviously has increased. They
as an impact and more transparency and ultimately less volatility.
I would argue, so the low volatility MODI market that
has many rein but definitely as a contributor the higher transparency.
Speaker 2 (24:06):
So you think this increased transparency with all this data
has led to lower volatility in things like energy prices
and commodity prices.
Speaker 3 (24:16):
It's one contributor. So clearly volatility has a physical contribution.
When you have a spare capacity that is ample, like
we've added on oil one, you have less disruptions, the
volatility is low. But what is important is that the
risk premium in commodities is also linked to the ability
(24:38):
to monitor the spying amount of fundamentals in real time,
and that is increased significantly. So when you have obviously
geopolitical tension in the Middle East and the risk of
disruptions there, you would have add the twenty years ago
many buyers that would board preemptively buy a crude keeping
(25:00):
storage because they wouldn't be able to assess right away
when there is a disruption. Now everybody's on their screens
monitoring the flows of ships coming in an auto every
country they can monitor the upstream activity, so that is
a little less how can I say preemptive buying or
(25:22):
selling because there is a lot more transparency.
Speaker 4 (25:25):
And we talked about just how much data is out there.
Speaker 1 (25:28):
We talked about some of the good data that might
be helpful, but what would you say is bad data?
Speaker 3 (25:35):
That's a good point. With the increasing data, there is
an equal increase of good and bad data. So there
are two reasons why you can have bad data. One
is that it is relying on a new technology. And
again I remember at the beginning of the satellite monitoring
of storage levels, there were a lot of errors and
(25:56):
we spend a lot of time to fine tune these models.
So at the beginning with all new data, you have
to be able to fine tune the algorithms that come
with it and therefore to make it more reliable. The
second part is when there is the increasing data availability
because there is high demand, but it is not relying
(26:19):
on solid technology. My favorite example is China data. There
is a tremendous demand for China. Data in every commodity
in oil, and we have scarcity of data in China
that is quite quite well known. So there is a
thriving of consultants in China that have surveys, phone surveys,
(26:40):
They collect data and sell it. I spend a lot
of time, as I mentioned, we end up spending a
lot more time assessing the quality of data now as
opposed to finding data as we ad at the beginning
of my career, try to understand whether these data are
reliable or not. There are a lot of not reliable
data in China. They are just coming from the fact
(27:00):
that there are people that need data and people that
want to provide it. But then when you dig deeper,
many of these surveys, many of these they are not
really of good quality. And obviously news are another thing.
There is a solid stream of work done in artificial
intelligence and large language models and the news. So try
(27:22):
to filter and to disslet what the news flows tell
you about potential direction and oil prices. That has been
very misleading. The news flows tend to, as you guys know,
exacerbates a certain trend without necessarily telling you that they're
adding anything news. So every time there is a big disruption.
(27:43):
The focus on disruptions, whether it is oil pipeline burst
or refinery or jet activity. The news grows and some
of the algorithms that have been developed to pick up
the signals from the news flows exacerbating the price action
as opposed to providing any signals. So there is a
(28:05):
lot of work that analysts need to do to filter
a noise that has increased proportionally with the data.
Speaker 1 (28:12):
Yeah, I'm a little incredulous about the news ones because
they've definitely covered it in terms of what it means
for recession or not a recession, and there have been
so many false flags. So yeah, I'm a little incredulous
about that one.
Speaker 2 (28:22):
Giovanni, a couple of we've been talking for almost thirty
minutes and we haven't asked you the question the direction
of oil prices. Now, China in the early two thousands
was a huge revolution for the industry, like it created
all this demand. But now China is big in renewable energy,
they're driving electric vehicles. What's the outlook for oil prices
(28:44):
of the median terms?
Speaker 3 (28:46):
Okay, so in terms of our for oil prices, you'll
be interested to know that you have to look more
at supplied than demand, and that is a big change.
Up until a couple of years ago, we thought that
the main driver of oil prices would have been a
plateau in demand globally, and exactly as you said, people
were focusing on the EV penetration in China. China is
(29:08):
selling way more than fifty percent of their vehicles in
in terms of EV's, the account for two thirds of
the global sales of EV's, and the demand in China,
the demand growth in China, which I used to account
for forty fifty percent of themand growth is dc accounting
for zero. China demand is no growing, is declining. In fact,
in road fuel demand that is only growing because of
(29:30):
the growth in jet the growth in a petrochemical feedstock demand,
so China is effectively not growing. But still we have
oil demand that is growing in the order of magnitute
of one million dollars per day. That is very similar
to the previous growth in the past. So the surprise
has been that despite the plateauing in a China demand,
(29:53):
global demand continues to grow unabated, and the growth is
yes centered in some emerging market but also in more
mature markets, so Middle East India and other parts of China,
South America, but also the US and Europe. But the
real look what everybody is looking at for the outlook
(30:15):
for this year next year, there is a surplus outlook.
That is, you know, excess oil this year and there's
going to be access oil next year. Is supply for
two critical reasons. One is that we have unlocked the
supply potential of non open countries thanks to investment that
were started many years ago that came to fruition three
(30:35):
years ago, last year and this year, and therefore non
opech supply growth has been very robust in not only
in the US, and the US growth has already kind
of plateaued, but in Latin America, in many parts even
in Europe, we have had a growth in non open
supply that has been quite significant. And the second has
(30:57):
been the reversal of the Opena supply agreements and therefore
a growth in supply coming from open and OPAK. I
would argue that that is the main driver we see
and the market sees. The consensus is a stock build
and therefore surplus this year and a surplus next year.
Maybe from twenty twenty seven and twenty eight if demand
(31:18):
continues to be solid and as surprise, a lot of
the upside is far more rebalancing, as there are less
projects that are coming online this year next year. One
thing that I would emphasize that I don't think has
been emphasized enough on the supply side is that the
growth in supply is not only driven by new projects
(31:40):
and by OPEC increasing production, but also in the last
couple of years by very low decline rates. Oil is
not a renewable source. It requires investments to keep the
production steady, and most oil companies have given up investing
in long term projects to expand refining production or oil
(32:02):
upstream production in the next five to ten years and
are investing to maintain production high currently. So against the
backdrop of non OPEK supply growth, we have zero declinent
rates in many in Europa countries and that supports is
an extraordinary supporter to the supply. So in summary, look
(32:25):
a supply rather than demand to understand the direction of
supply and main fundamentals.
Speaker 2 (32:31):
Givannie wanted to take this discussion to a different direction.
Speaker 3 (32:34):
Now.
Speaker 2 (32:34):
At the beginning, we mentioned that you were retiring from
the industry after you know, like twenty years in commodity
trading firms, like, can you tell us how is this
like just from a personal level, how has the industry
changed in terms of like the personnel, you know.
Speaker 3 (32:52):
The change in people has mimicked the change in the
industry that we were discussing. Traders, especially physical traders, tended
to be marketers. They rely on a relationship with other suppliers,
with consumers. It was very and continues to be in
many cases a relationship business. But over the years, what
(33:16):
has changed is that traders are becoming much more analysts.
They have to deal with a lot more data. They
have to deal with markets that are responding a lot
faster to information and data, and so my colleague on
the trading side have definitely become a lot more data savy,
a lot more technologies savy, even in physical trading houses
(33:36):
like vital So that brings it to you know, is
a process that obviously Wall Street that's seen many decades ago,
and there is impacting also the oil and the energy industry.
So the fact that the market is more transparent the
means that you have traders they are spending a lot
more time looking at data and relying on analysts and
professional analysts when I started my career twenty years ago,
(33:58):
it was not uncommon for trading desks to use as
analysts as an entry level kind of job, to crunch
some numbers, put together some table for the traders. It
was not a professional career. Now, in the last five
to ten years, it would be unthinkable for a successful
trader or trading house not having a group of professional
(34:22):
analysts that keep abreast with all the new technology, new models,
and they can help make sense of the increasing amount
of data. So that has changed, and I.
Speaker 2 (34:32):
Have to ask you, Lok, what did you do on
that day, I think it was April twenty when WTI
went negative? Do you remember that day clearly? And like
tell us.
Speaker 3 (34:40):
All very much, very much. Many of us still keep
the picture of the screen the show's negative prices, and
we were all at home, right it was a lockdown period.
We were working from home, so it was difficult to
kind of give you the sensation of what happened in
the trading floor because the trade floor were all shot. Right. Well,
the first thing is I think for me, was to
(35:01):
actually go and check if it was even possible to
the negative prices, and kind of obviously it was, but
I never seen it in my career. I kind of
knew that you could go negative intra day, but never
thought that you could actually have a closing price. There
was a negative and the environment, however, was very clear.
(35:21):
Maybe there was a distortion in that period. There was
driven by the fact that in this high volatility and
high frequency trading there could be some positions and people
in some positions that cannot close their position and therefore
they have to accept negative prices in order to get
out of the position. But the general environment was a
(35:41):
gigantic over supply in the market. It was a situation
where physical oversupply because of let's not forget a loss
of twenty million arks per day of demand in April
twenty twenty. There was so much oil, so much energy
kind of then needed to be directed somewhere that it
was not surprising to see prices that are very cheap,
(36:06):
even negatively. So negative prices in the physical world means
that a producer is paying somebody to take the oil
because they have too much of it, and it's more
costly to shut down the production and oil field because
then to restart it will take a lot longer than
to just pay somebody to take away the oil and
in that period and most likely we're going to have
(36:28):
it to a much lower extent in the next couple
of years. There were traders that were paid to store
oil and using big tankers, so the flooding storage was
growing dramatically. The contain within the market was very steep,
and that is an environment where typically traders are paid
(36:49):
to store oil. Maybe it's going to happen this year,
next year as well, not to the same extent, but
it was clearly one of the many things that in
that period was considered to be unprecedented, and that many
of us grew to be tired with the word unprecedented
in the twenty one to twenty three period.
Speaker 2 (37:10):
Okay, yeah, it was a golden period for you and
the industry. But also before I let you go, I
wanted to ask this question that you worked at Vito
for nine years, almost a decade, can you just let
us know how things changed in the company from say,
like when you joined to when you just recently left.
Speaker 3 (37:29):
It has grown in terms of people, it has grown
in terms of business.
Speaker 2 (37:35):
There is still less than two thousand people right.
Speaker 3 (37:38):
Still, yes, but normal people has increased and the business
have increased. Maybe is more the qualitative element than the
quantitati development there is. Oil used to be the center,
and now there is a big growth and focus and
investment in non oil business, whether it is gas or
it is renewable, and so that effort has been very visible,
(38:02):
not only in vital but in many in training houses.
So call it the impact of a nature transition. Obviously,
with that level of scale, you have to plan for
the next few years, is not just looking at your
business right now, So that is a clear difference. Has
been a lot more open. People like me spend a
lot more time participating in conferences, talking to institutions government,
(38:25):
especially in the twenty twenty two twenty three period, to
help share what we were seeing in the physical market,
the challenging of the rebalancing, and so the transparency has
increased not only in the markets, but also in the
way many of these trading houses have been communicating with
the market.
Speaker 2 (38:42):
And will any of these companies go public? On a
glen Core was the exception back in twenty eleven, but
these are massive companies. Do you think they'll remain private
or do you think that list?
Speaker 3 (38:53):
I think and I lived in first person the experience
in a public company. There was a trading house. Noble
used to be the largest in the trading house in Asia.
My experience is that it is a business that is
very difficult to be dealt in a public market. The
main reason really is that you need a very patient
(39:15):
capital that supports the business. The quarterly reporting of a
trading business that could be very bad and very good
in some quarters can be very disorienting for market. The
capital needs to be patient as to suffer some big
drawdowns and some big losses to then hope for bigger
kind of payout. Glen Core is a very good example.
(39:38):
It was under similar pressure the Noble was in the
period around twenty fifteen twenty sixteen, but he managed to
actually thrive and survive because I had a very strong asset.
Basis is a big miner as well as a big trader.
But the business model of an asset light trading house
that goes to public market it seems to be very
(40:01):
difficult to support.
Speaker 2 (40:03):
Giovanni, that was a really enlightening discussion. Thanks for joining.
Speaker 3 (40:06):
Thank you very much for having me.
Speaker 2 (40:08):
You've been listening to as Eccentric from Bloomberg Intelligence. I'm
John Lee in Hong Kong.
Speaker 4 (40:12):
And I'm Katjadman Trava, also in Hong Kong.
Speaker 1 (40:14):
You can find more episodes on Apple Podcasts, Spotify, wherever
you listen.
Speaker 4 (40:19):
Our show was produced and edited by Claire Chen.
Speaker 1 (40:22):
See you next time,
Vitol, Cargill, and Traffigura are among the world's fifty biggest
companies and you probably haven't heard of them. They buy
and sell commodities like oil, grains, metals, and they do
it at scale, with annual turnover in the hundreds of
billions of dollars by revenue. They're bigger than Ford Bank
(00:21):
of America, among other household names.
Speaker 2 (00:24):
But these commodity trades aren't publicly listed, with a few exceptions,
and they don't make headlines often and they prefer it
that way. So how have commodity trades managed to expand
so quickly to form a key part of global trade,
How have companies like Vito managed to dominate certain commodities?
And what risks does renewable energy and the shifting geoplul
(00:47):
landscape pose.
Speaker 1 (00:49):
Joining us today is Giovanni Serdio, a twenty year veteran
of the commodity trading industry, and up until recently he
was the global head of research at Vitol. He since
retired and joins us from Singapore. Thank you so much
for being here.
Speaker 3 (01:02):
Thank you for having me guys.
Speaker 2 (01:04):
Giovanni, as Katya mentioned, you were the head of research
at Vito. The world's largest independent energy trader and one
of the largest companies in the world. You had some
experience at Noble Group as well, once a major commodity
trading house, so I've had a long run at these
commodity trading firms. What exactly do these firms do?
Speaker 3 (01:25):
In general? Trading houses and commodity traders are large traders.
They buy and sell commodities, they distribute it globally, they
store it, and they transform it to what is necessary.
So the way we like to think about the business
of trading houses is trading commodities in space, time and
(01:46):
in quality. And that is reflected by the fact that
most of them are not producers, are not consumers. They
can benefit and have a business that can thrive in
bull markets or bare markets, but effectively trade the relative
prices rather than what we call flat prices. So they
(02:07):
would benefit when prices oil or commodity prices are high
or where they are low. The key is to manage
the supply chains.
Speaker 4 (02:15):
What does it actually look like physically?
Speaker 1 (02:17):
You know, people might get an image of decades ago
sort of a commodity clearing houses. This is not it.
I mean, is this people sitting at computers, is this
AI like, what does it look like?
Speaker 3 (02:30):
The market has definitely seen in the dramatic increase in
the use of data. It is still a physical business.
It requires physical infrastructure, and again most of the physical
infrastructure is in the logistics chain. It still requires a
big storage capacity because when prices are low, many of
(02:51):
these companies are incentivized to store the commodity. It requires
blending facility or transformation. To transform commodity between one and
the other requires quite a heavy reliance on logistics infrastructure,
including shipping, so many of the big names still need
a fair amount of transportation capacity. Having said that, what
(03:13):
has grown in the past few years is also the
ability or the capacity to elaborate treat to analyze data.
Because the market used to be twenty years ago when
I started my career, a very opaque market where physical
players could take advantage of the informational advantage they had
(03:35):
over other players. And in the last twenty years instead
there's been a dramatic increase in the availability of data.
So these days there are a lot more computers, a
lot more multiple screens, a lot more data scientists in
trading houses than what they used to be.
Speaker 2 (03:51):
For sure, But if I could ask a big broad question,
why do we need commodity trading companies? Like I thought
that someone like Saudi or Ramco or BHP or Show
would just sell their commodities straight to the customers.
Speaker 3 (04:06):
Well. Originally the idea of an independent training house because obviously,
as you mentioned there are a lot of trading desks
that are sitting with the old major was the fact
of being able to transport, sell, and transform commodities without
the conflict of interest with the clients. So they are
marketing agents. They go and have and off take an
(04:28):
agreement with the let's say small independent share producers in
the US. They can sell to let's say tip of
refineries in China. They can sell everywhere in the world.
They don't have a conflict with their clients because they're
not big producers, they are not big consumers. They generally
try to make a bigger margins out of the buying
and selling and therefore to be as efficient as possible
(04:50):
in the logistics. And they have the flexibility that many
of the oil majors that are stuck with their oil,
with their systems, with their infrastructure don't have. So they
can move quite fast in adjusting to changing in trade flows,
in production locations or qualities. An example is obviously in
(05:15):
the last few years there's been an increasing use of
sanctions and there's been a big change in trade flows.
Just think about the Russian flow. They used to go
to Europe with one or two days of travel that
now they have to go around China. There is a
fundamental change to the way the trade flows is there
(05:36):
and that has a lot of knock on effect in
the sense the buyers in Europe had to source their
oil and gas from a different sources and having an
independent marketer that can jump in without having legacy systems
or oil or gas and can provide the level of
(05:56):
flexibility as become in fact even more important the word
it was originally ten years ago.
Speaker 4 (06:02):
Yeah, and there's other changes too, right, So companies like
Vito have actually through subsidiaries of course, but they've gotten
into exploration and development as well.
Speaker 3 (06:11):
Right, Yes, So the landscape has become more competitive and
that means that, as you guys mentioned, when you have
oil companies that are setting up there trading desks, when
you have also been consumers whether it is utilities or
refineries that have big desks, there is a lot more competition,
(06:32):
and that means that there's been also a push from
independent trading houses to own a part of the supply
chain that goes a bit more upstream and a bit
more downstream. But still, if you think of the volumes
these big trading houses have compared to their upstream presence
or their ownership of refineries, is still very small. So
(06:56):
it's definitely the response to a more competitive landscape, to
the higher competition from producers. But the core of the
business is still fundamentally trading. And I can tell you
from my experience when I was running the Oil Analytics MVP,
this is fundamentally different a business a trading business. The
(07:16):
sit in a big producer and a trading business that
is entirely independent. And this is not only the conflict
of interest that I was mentioning to you before, but
it is a proper culture. In the trading business, the
main focus is how to have strong marketing margins, how
to optimize the flows. In a producer business, the main
(07:40):
focus is how to keep production high, steady, low cost.
Is much more an engineering effort rather than a logistic
optimization effort, And as an analyst, I could completely see
that the very different environment between an oil major trading
desk and independent trading.
Speaker 4 (08:00):
Could we unpack that culture a little bit.
Speaker 1 (08:03):
You had just said that it has to do with
optimized Yeah, could we unpack the culture just a little
bit and what you meant there.
Speaker 3 (08:11):
Yeah, So in a big oil major, the focus has
to be stability, production has to be safety, security or
production long term presence in the oil space, and the
trading is still seen as a way to help that
main focus that is still production and refining. And so
(08:32):
that means inevitably that that is priority given to investment
in upstream, priority given to investment in the asset. So
is an asset heavy business. The trading business tends to
be asset light. The assets are really in logistics and
the assets that are owned are functional to the trading.
(08:54):
So when a trading house decide to buy assets, whether
it is pipeline, storage, ship or even upstream or even downstream,
the question is always how it can improve the trading
and the marketing for their clients. So that's the difference
in culture. It's the assets they are functional to trading
in the trading house, and instead the assets that they
(09:15):
are the central of the business model.
Speaker 2 (09:17):
In oil majors, and these traders at the trading firms
are much more into the culture. There much more like
risk taking, an opportunistic like what you might find on
Wall Street correct versus say like a producer.
Speaker 3 (09:30):
Well, the traders per se are the same. If you
look at the traders the vital they are mostly our
xbp X shel X majors. There are a lot of
x vvls in other places. Are the all change. The
trading desk per se is very similar. The difference is
the business model. Traders in big ol majors trade the
(09:52):
oil that comes or the goes to their assets, so
they tend to optimize their assets. Their job is to
make sure that the product produce used by their refineries
and the oil that is produced by oil field is
sold and the feedstock is sourced efficially. Independent traders and
therefore traders they work for. Independent traders don't have that
kind of a task, they don't have that kind of
(10:15):
objective and therefore, yes, there is more flexibility they can
buy and sell, but also means that often not all
traders are successful when they move from a asset centric
business model like oil majors into a training house. Because
you are right to the extent that every trading in
a training house has to wake up every morning to
(10:36):
figure out where are the opportunities and i'll to spend
their time. There is at a bit closer to Wall
Street in that respect than to a industrial operation like
an oil major.
Speaker 2 (10:47):
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(11:09):
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Speaker 1 (11:14):
One thing that some listeners may be surprised to learn
is just how much money is in this business. And
you touched on that very briefly there sort of the
Wall Street similarities. For me, it was interesting to learn.
You know, it's not real estate, it's not banking or infrastructure,
but there's just so much in terms of the ownership
of assets and also how much you know, people get paid.
(11:35):
So just a quick stat for our listeners so the
top thirteen employee partners at glen Core were collectively worth
about twenty nine billion dollars. Now, it's back in twenty eleven,
that's when the company was going public and disclosed the information,
and the IPO minted seven billionaires. It's pretty incredible. And
that's according to my colleague Lavier Blast. He's a Bloomberg
(11:57):
reporter and he wrote a book called The World for Sale. Well,
so why is our question? Why is there so much
money in this space?
Speaker 3 (12:08):
You guys mentioned it at the beginning, at the ranking
of private companies, for example, in the world, you see
that at the top there are always commodity traders. There
are two reasons. You need scale for this business. So
the revenue of these commodity traders is quite high. You
need scale. It's very difficult to survive in a business
that are very low margins. By definition is a business
(12:31):
that has maybe one percent marginal revenue. Two percent marginal
revenue is their commodity is they are not very differentiated
as products. You need scale. So they tend to be
very big players that move a lot of material in
the world, and therefore the revenue are very high. But
also the profits tend to be high because of the
scale of the business. The second thing is that the
(12:55):
profitability really depends on the challenge is on the supply chain. Globally,
there are periods and the last couple of years I
would say from twenty twenty one, maybe twenty two, twenty three,
twenty four been the best years for the commodity trading business.
But why so, it's difficult to remember the bad years,
(13:17):
but there have been a lot of bad years right.
Why has been particularly attractive the proposition of trading in
the last few years because there's been a revolution, a
big change, structural change in the direction of flows of
commodities around the world. Normally, this happens because you find
the commodities in different parts of the world, and then
there is the demand centers there are very far from
(13:39):
where you have the producers and you need to bridge
that gap. That's our cyclical When you are big commodity cycles,
you have this tendency to build infrastructure to move the
commodity around. This time around has been a fundamental shift
linked to the change in geopolitical balance around the world,
with Russia Ukraine in war. What has been escalating is
(14:03):
the regime of sanctions, the implicit or explosien sanctions, the
challenges in transporting commodities around the world. This has increased
the role of traders that have bigger margins, but also
they are serving a bigger purpose. If you think about
the fact that Europe managed to effectually get completely rid
(14:24):
of their dependence to Russia as far as oil is concerned,
and the vast majority of gas is concerned, just relying
on seaborn oil and gas coming from different parts of
the world, and therefore Europe managed to avoid the sleeper
recession out of the Ukraine War exactly because of the
ability to transport and source the commodity from different areas.
(14:48):
You see how bigger role the traders. So if you
combined factively scale high volumes, the fact that there's been
a significant change in the need for more trading in
the current environment, you can justify the high margins and
high profits.
Speaker 1 (15:04):
You mentioned that the demand for traders has gone up
as well in the past few years. What's behind that?
Why is demand increased.
Speaker 3 (15:13):
Because the flows and the supply chain in commodity has
been significantly disrupted by wars and sanctions. So think about
the sanctions for example, right now you have fourteen to
fifteen percent of world production in the world that is Action, Russia, Venezuela, Iran.
There are all kind of very big producers. You need
(15:38):
to reroot trading of commodities to accommodate sanctions, to accommodate
your political risks, and that requires a bigger role for traders.
How does that materialize? How does that translate into profits? Well,
geographical ARBs. The price for gas in Europe and for
(16:02):
oil in Europe after the Ukraine War has significantly increased
relative to the US or relatively to Asia. That creates
an arbitrage. There is a different in prices between two
geographical locations, and that is where trading is needed. You
need the traders that take oil source gas to be
(16:22):
delivered into the region with higher prices, and these create margins,
create profits, but also helps the optimization of the logistics.
Does that make sense.
Speaker 2 (16:33):
Yes, So you made an interesting point. So companies like
Vito made record profits during that twenty twenty one twenty
two twenty three period, not because so much like Brent
or WTI, prices went up, but because there was a
big disruption in the global supply chain.
Speaker 3 (16:50):
Absolutely so, trading houses as I mentioned they are not
producers or consumers, so they really benefit from relative prices.
And so you saw something like gazwell cracks. Things that
maybe not all of your audience that would be aware
of is the difference between diesel or gazwel prices and
crude wil prices that exploded to unpresidential levels, and that
(17:15):
is where the relative prices volatility incentivized more trading and
ultimately translate into profits. And again, geographical arb exploded. So
it's really if you look into the detail of the
disruptions in twenty twenty two and twenty three, they were
not global total supplied demand disruptions. There were relative disruptions
(17:40):
in geography and quality of the commodities.
Speaker 1 (17:44):
Kind of leads to a question that I've been thinking about. So,
you know, you've been in the industry for a while,
so you've probably heard this criticism. But this exact thing
we're talking about that has led to record profits for
these companies is also because of directly because of this
geopolitical instability and a lot of just suffering that people
(18:06):
go through in these countries. I wonder what you would
say to that kind of criticism that these companies are
somehow taking advantage of the situation or in some cases
even flouting rules.
Speaker 3 (18:19):
Well, again, if you are operated at the level of scale,
your compliance department has to do a big job because
you have to respect every sanction, So you have to
respect every rule. There have been a growing of smaller
trading houses that have been thriving because there were trading
sanction barrels section oil. That is not the case for
(18:40):
the big oil traders. They are European American trading houses.
They need to follow the sanctions. So clearly that is
a big focus in trying to focus on the sanction.
But what would I will flip the argument to highlight
how some countries in particularly Europe managed to avoid the
steep recession despite being cut from the main supplier of
(19:04):
gas and oil. That is something that man in the
market would have not believe they known the scale of
disruptions of oil, and that is thanks to trading. So
a lot of people clearly that suffered from high energy
prices at the same time managed to avoid worse consequences
(19:27):
because replacement molecules were found and delivered. So again you
might argue that the margins were high, that the profits
were high, but at the same time, the impact on
the economy was absolutely tangible, visible, and that is the
(19:48):
way the market responds to these kind of incentives.
Speaker 2 (19:52):
Giovanni, I wanted to get back to what we discussed
at the beginning of this episode. You mentioned the impact
of technology. Now, you've been recent arching the oil markets
for many years at VTA but also at Nobook Group,
and you also did stint at like Goldman Sachs and
Italy's Central Bank. But tell us like, how has technology
in particular things like you know, big data satellites impacted
(20:15):
your analysis of the energy markets.
Speaker 3 (20:18):
Yeah, that is a I would say proper revolution and
commodities market and energy market in the last twenty years.
And the revolution is the growth in data. So the
extent to which technology has managed to make a market
that is traditional opaque to a market that is way
more transparent than what it was twenty years ago. If
(20:39):
I think about the beginning of my career as an analyst,
I started Gommber that I went to VP. The name
of the game was to find data, to make sure
that you can through internal sources in a big oil
major or through other sources to find data that could
tell you or how strong is demand, how big production is,
(20:59):
and so forth. Now, the job of most analysts is
to filter data. There is way more data than what
is possible to appreciate, and so most of our colleagues
in a trading desk are trying to filter bad data
from new data, from good data and try to make sense.
Speaker 4 (21:17):
Of where does it going to come from?
Speaker 3 (21:18):
You. So examples, very visible examples are ship tracking. Now
every ship that transports commodities can be tracked in real
time on a mapp in a trader desktop, and you
can track wheny loaded, how deep the drafte is, so
how loaded it is, if it's full of if it's not.
(21:39):
You can see the destination or estimate the destination through
previous routes. And that is available to everybody in every
desk and even to not professional investors because it is
a service that is provided by company storage capacity and
storage levels. Through satellite you can estimate on a daily
(22:01):
basis how much crude oil is stored in China, in Europe,
in the US, and that changes all the time.
Speaker 1 (22:08):
How do you see that from a satellite image? How
do you see that?
Speaker 3 (22:11):
How do you tell I can tell you that we
spend a lot of time at least I would say
five to ten years ago to develop algorithm that from
the shadow of the floating roofs of this facility can
tell you also when there are clouds. So through infrared
technology from satellite can translate into how deep it is.
(22:35):
So most of the crude oil storage facilities have a
roof that goes down that is empty and up when
it's full, and that allows you to estimate and you
know at the beginning we're very rough. Now they are
quite accurate how full they are. I'll give another example.
Most refineries, at least in western countries have now an
infrared camera that is outside their facilities and they can
(22:59):
monitor thattivity minute by minute when there is a problem
with a refinery, as an analyst or as a trader,
you can just click on a button and see the
infrared imagery and the translation of what it means in
terms of activity. So flaring of gas in the refinery
typically signals a problem in the refineries. Are potential maintenance
(23:21):
coming or potential disruption coming. You can monitor when your
refinery come online. Through satellite imagery, you can monitor what
is the size of the crew in a shale oil
field to tell you whether they are really increasing production
or not. These are all data that were absolutely unimaginable
ten years, twenty years ago, and that is has increased
(23:43):
the demand for analysts like Move obviously has increased. They
as an impact and more transparency and ultimately less volatility.
I would argue, so the low volatility MODI market that
has many rein but definitely as a contributor the higher transparency.
Speaker 2 (24:06):
So you think this increased transparency with all this data
has led to lower volatility in things like energy prices
and commodity prices.
Speaker 3 (24:16):
It's one contributor. So clearly volatility has a physical contribution.
When you have a spare capacity that is ample, like
we've added on oil one, you have less disruptions, the
volatility is low. But what is important is that the
risk premium in commodities is also linked to the ability
(24:38):
to monitor the spying amount of fundamentals in real time,
and that is increased significantly. So when you have obviously
geopolitical tension in the Middle East and the risk of
disruptions there, you would have add the twenty years ago
many buyers that would board preemptively buy a crude keeping
(25:00):
storage because they wouldn't be able to assess right away
when there is a disruption. Now everybody's on their screens
monitoring the flows of ships coming in an auto every
country they can monitor the upstream activity, so that is
a little less how can I say preemptive buying or
(25:22):
selling because there is a lot more transparency.
Speaker 4 (25:25):
And we talked about just how much data is out there.
Speaker 1 (25:28):
We talked about some of the good data that might
be helpful, but what would you say is bad data?
Speaker 3 (25:35):
That's a good point. With the increasing data, there is
an equal increase of good and bad data. So there
are two reasons why you can have bad data. One
is that it is relying on a new technology. And
again I remember at the beginning of the satellite monitoring
of storage levels, there were a lot of errors and
(25:56):
we spend a lot of time to fine tune these models.
So at the beginning with all new data, you have
to be able to fine tune the algorithms that come
with it and therefore to make it more reliable. The
second part is when there is the increasing data availability
because there is high demand, but it is not relying
(26:19):
on solid technology. My favorite example is China data. There
is a tremendous demand for China. Data in every commodity
in oil, and we have scarcity of data in China
that is quite quite well known. So there is a
thriving of consultants in China that have surveys, phone surveys,
(26:40):
They collect data and sell it. I spend a lot
of time, as I mentioned, we end up spending a
lot more time assessing the quality of data now as
opposed to finding data as we ad at the beginning
of my career, try to understand whether these data are
reliable or not. There are a lot of not reliable
data in China. They are just coming from the fact
(27:00):
that there are people that need data and people that
want to provide it. But then when you dig deeper,
many of these surveys, many of these they are not
really of good quality. And obviously news are another thing.
There is a solid stream of work done in artificial
intelligence and large language models and the news. So try
(27:22):
to filter and to disslet what the news flows tell
you about potential direction and oil prices. That has been
very misleading. The news flows tend to, as you guys know,
exacerbates a certain trend without necessarily telling you that they're
adding anything news. So every time there is a big disruption.
(27:43):
The focus on disruptions, whether it is oil pipeline burst
or refinery or jet activity. The news grows and some
of the algorithms that have been developed to pick up
the signals from the news flows exacerbating the price action
as opposed to providing any signals. So there is a
(28:05):
lot of work that analysts need to do to filter
a noise that has increased proportionally with the data.
Speaker 1 (28:12):
Yeah, I'm a little incredulous about the news ones because
they've definitely covered it in terms of what it means
for recession or not a recession, and there have been
so many false flags. So yeah, I'm a little incredulous
about that one.
Speaker 2 (28:22):
Giovanni, a couple of we've been talking for almost thirty
minutes and we haven't asked you the question the direction
of oil prices. Now, China in the early two thousands
was a huge revolution for the industry, like it created
all this demand. But now China is big in renewable energy,
they're driving electric vehicles. What's the outlook for oil prices
(28:44):
of the median terms?
Speaker 3 (28:46):
Okay, so in terms of our for oil prices, you'll
be interested to know that you have to look more
at supplied than demand, and that is a big change.
Up until a couple of years ago, we thought that
the main driver of oil prices would have been a
plateau in demand globally, and exactly as you said, people
were focusing on the EV penetration in China. China is
(29:08):
selling way more than fifty percent of their vehicles in
in terms of EV's, the account for two thirds of
the global sales of EV's, and the demand in China,
the demand growth in China, which I used to account
for forty fifty percent of themand growth is dc accounting
for zero. China demand is no growing, is declining. In fact,
in road fuel demand that is only growing because of
(29:30):
the growth in jet the growth in a petrochemical feedstock demand,
so China is effectively not growing. But still we have
oil demand that is growing in the order of magnitute
of one million dollars per day. That is very similar
to the previous growth in the past. So the surprise
has been that despite the plateauing in a China demand,
(29:53):
global demand continues to grow unabated, and the growth is
yes centered in some emerging market but also in more
mature markets, so Middle East India and other parts of China,
South America, but also the US and Europe. But the
real look what everybody is looking at for the outlook
(30:15):
for this year next year, there is a surplus outlook.
That is, you know, excess oil this year and there's
going to be access oil next year. Is supply for
two critical reasons. One is that we have unlocked the
supply potential of non open countries thanks to investment that
were started many years ago that came to fruition three
(30:35):
years ago, last year and this year, and therefore non
opech supply growth has been very robust in not only
in the US, and the US growth has already kind
of plateaued, but in Latin America, in many parts even
in Europe, we have had a growth in non open
supply that has been quite significant. And the second has
(30:57):
been the reversal of the Opena supply agreements and therefore
a growth in supply coming from open and OPAK. I
would argue that that is the main driver we see
and the market sees. The consensus is a stock build
and therefore surplus this year and a surplus next year.
Maybe from twenty twenty seven and twenty eight if demand
(31:18):
continues to be solid and as surprise, a lot of
the upside is far more rebalancing, as there are less
projects that are coming online this year next year. One
thing that I would emphasize that I don't think has
been emphasized enough on the supply side is that the
growth in supply is not only driven by new projects
(31:40):
and by OPEC increasing production, but also in the last
couple of years by very low decline rates. Oil is
not a renewable source. It requires investments to keep the
production steady, and most oil companies have given up investing
in long term projects to expand refining production or oil
(32:02):
upstream production in the next five to ten years and
are investing to maintain production high currently. So against the
backdrop of non OPEK supply growth, we have zero declinent
rates in many in Europa countries and that supports is
an extraordinary supporter to the supply. So in summary, look
(32:25):
a supply rather than demand to understand the direction of
supply and main fundamentals.
Speaker 2 (32:31):
Givannie wanted to take this discussion to a different direction.
Speaker 3 (32:34):
Now.
Speaker 2 (32:34):
At the beginning, we mentioned that you were retiring from
the industry after you know, like twenty years in commodity
trading firms, like, can you tell us how is this
like just from a personal level, how has the industry
changed in terms of like the personnel, you know.
Speaker 3 (32:52):
The change in people has mimicked the change in the
industry that we were discussing. Traders, especially physical traders, tended
to be marketers. They rely on a relationship with other suppliers,
with consumers. It was very and continues to be in
many cases a relationship business. But over the years, what
(33:16):
has changed is that traders are becoming much more analysts.
They have to deal with a lot more data. They
have to deal with markets that are responding a lot
faster to information and data, and so my colleague on
the trading side have definitely become a lot more data savy,
a lot more technologies savy, even in physical trading houses
(33:36):
like vital So that brings it to you know, is
a process that obviously Wall Street that's seen many decades ago,
and there is impacting also the oil and the energy industry.
So the fact that the market is more transparent the
means that you have traders they are spending a lot
more time looking at data and relying on analysts and
professional analysts when I started my career twenty years ago,
(33:58):
it was not uncommon for trading desks to use as
analysts as an entry level kind of job, to crunch
some numbers, put together some table for the traders. It
was not a professional career. Now, in the last five
to ten years, it would be unthinkable for a successful
trader or trading house not having a group of professional
(34:22):
analysts that keep abreast with all the new technology, new models,
and they can help make sense of the increasing amount
of data. So that has changed, and I.
Speaker 2 (34:32):
Have to ask you, Lok, what did you do on
that day, I think it was April twenty when WTI
went negative? Do you remember that day clearly? And like
tell us.
Speaker 3 (34:40):
All very much, very much. Many of us still keep
the picture of the screen the show's negative prices, and
we were all at home, right it was a lockdown period.
We were working from home, so it was difficult to
kind of give you the sensation of what happened in
the trading floor because the trade floor were all shot. Right. Well,
the first thing is I think for me, was to
(35:01):
actually go and check if it was even possible to
the negative prices, and kind of obviously it was, but
I never seen it in my career. I kind of
knew that you could go negative intra day, but never
thought that you could actually have a closing price. There
was a negative and the environment, however, was very clear.
(35:21):
Maybe there was a distortion in that period. There was
driven by the fact that in this high volatility and
high frequency trading there could be some positions and people
in some positions that cannot close their position and therefore
they have to accept negative prices in order to get
out of the position. But the general environment was a
(35:41):
gigantic over supply in the market. It was a situation
where physical oversupply because of let's not forget a loss
of twenty million arks per day of demand in April
twenty twenty. There was so much oil, so much energy
kind of then needed to be directed somewhere that it
was not surprising to see prices that are very cheap,
(36:06):
even negatively. So negative prices in the physical world means
that a producer is paying somebody to take the oil
because they have too much of it, and it's more
costly to shut down the production and oil field because
then to restart it will take a lot longer than
to just pay somebody to take away the oil and
in that period and most likely we're going to have
(36:28):
it to a much lower extent in the next couple
of years. There were traders that were paid to store
oil and using big tankers, so the flooding storage was
growing dramatically. The contain within the market was very steep,
and that is an environment where typically traders are paid
(36:49):
to store oil. Maybe it's going to happen this year,
next year as well, not to the same extent, but
it was clearly one of the many things that in
that period was considered to be unprecedented, and that many
of us grew to be tired with the word unprecedented
in the twenty one to twenty three period.
Speaker 2 (37:10):
Okay, yeah, it was a golden period for you and
the industry. But also before I let you go, I
wanted to ask this question that you worked at Vito
for nine years, almost a decade, can you just let
us know how things changed in the company from say,
like when you joined to when you just recently left.
Speaker 3 (37:29):
It has grown in terms of people, it has grown
in terms of business.
Speaker 2 (37:35):
There is still less than two thousand people right.
Speaker 3 (37:38):
Still, yes, but normal people has increased and the business
have increased. Maybe is more the qualitative element than the
quantitati development there is. Oil used to be the center,
and now there is a big growth and focus and
investment in non oil business, whether it is gas or
it is renewable, and so that effort has been very visible,
(38:02):
not only in vital but in many in training houses.
So call it the impact of a nature transition. Obviously,
with that level of scale, you have to plan for
the next few years, is not just looking at your
business right now, So that is a clear difference. Has
been a lot more open. People like me spend a
lot more time participating in conferences, talking to institutions government,
(38:25):
especially in the twenty twenty two twenty three period, to
help share what we were seeing in the physical market,
the challenging of the rebalancing, and so the transparency has
increased not only in the markets, but also in the
way many of these trading houses have been communicating with
the market.
Speaker 2 (38:42):
And will any of these companies go public? On a
glen Core was the exception back in twenty eleven, but
these are massive companies. Do you think they'll remain private
or do you think that list?
Speaker 3 (38:53):
I think and I lived in first person the experience
in a public company. There was a trading house. Noble
used to be the largest in the trading house in Asia.
My experience is that it is a business that is
very difficult to be dealt in a public market. The
main reason really is that you need a very patient
(39:15):
capital that supports the business. The quarterly reporting of a
trading business that could be very bad and very good
in some quarters can be very disorienting for market. The
capital needs to be patient as to suffer some big
drawdowns and some big losses to then hope for bigger
kind of payout. Glen Core is a very good example.
(39:38):
It was under similar pressure the Noble was in the
period around twenty fifteen twenty sixteen, but he managed to
actually thrive and survive because I had a very strong asset.
Basis is a big miner as well as a big trader.
But the business model of an asset light trading house
that goes to public market it seems to be very
(40:01):
difficult to support.
Speaker 2 (40:03):
Giovanni, that was a really enlightening discussion. Thanks for joining.
Speaker 3 (40:06):
Thank you very much for having me.
Speaker 2 (40:08):
You've been listening to as Eccentric from Bloomberg Intelligence. I'm
John Lee in Hong Kong.
Speaker 4 (40:12):
And I'm Katjadman Trava, also in Hong Kong.
Speaker 1 (40:14):
You can find more episodes on Apple Podcasts, Spotify, wherever
you listen.
Speaker 4 (40:19):
Our show was produced and edited by Claire Chen.
Speaker 1 (40:22):
See you next time,
Hosts And Creators
John Lee
Tom Corbett
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