SINGAPORE: Vitol, the world’s largest independent energy trader, found itself on shaky footing when the Middle East conflict broke out on Feb 28.
The conflict, which saw the US and Israel launch an attack on Iran, disrupted the supply of crude oil, products and liquefied natural gas from the Gulf.
Vitol and other commodity trading houses – which serve as intermediaries between producers and consumers – typically profit during periods of volatility.
But trading houses had made bets on falling energy prices and suffered heavy losses when prices surged on the back of supply disruptions from the oil- and gas-rich region.
Traders also had to make arrangements to replace cargoes stuck in the Gulf that were promised to clients.
Consultancy Oliver Wyman estimated that trading houses – including Vitol, which ships an average of around eight million barrels per day of crude oil and other products – saw early losses amounting to billions of dollars.
Still, ongoing volatility created trading opportunities for Vitol and its peers.
While Swiss-based Vitol does not publicly disclose its earnings, Bloomberg reported that the firm, in its briefing to banks, said it made around US$2 billion (S$2.5 billion) in profits in the first quarter.
Vitol, which opened its office in Singapore that acts as its Asia-Pacific headquarters in 1979, reassured lenders that it remains financially resilient, even as ongoing volatility continues to create potential gains and losses across its trading positions, according to Bloomberg.
The news agency also reported that Singapore-headquartered Trafigura, a large oil and metals trader, enjoyed one of its best-ever quarters, while independent trader Gunvor Group, which counts the Republic as one of its main trading hubs, made more in the quarter than the whole of 2025.
The positive financial performances come as traders posted strong gains linked to the Iran conflict, reinforcing expectations that continued market volatility could boost their profits.
Agrocorp’s chief executive Vishal Vijay told The Straits Times that the Singapore-founded agri-commodities trader had to “absorb the increase in cost” for contracts it entered into before the Middle East conflict.
Even so, he added: “The conflict has introduced quite a bit of volatility in agri-commodity prices. The volatility naturally allows for some trading opportunities as well.”
The firm supplies staple foods and speciality crop products, such as wheat, pulses, cocoa, coffee beans and rice, to leading food manufacturers across the Asia-Pacific region and the Middle East.
Trading houses such as Agrocorp incur losses when they commit to supplying a commodity at a fixed price and its market cost rises afterwards. However, they benefit when the price of acquiring the commodity falls after a contract is agreed upon, or if they have hedged sufficiently against potential losses.
Traders commonly engage in hedging – an investment strategy designed to reduce the risk in case prices of a commodity move adversely.
A trader that has taken delivery of a physical cargo of oil also often takes positions in the paper market, through instruments like futures, options or swaps, to speculate on price movements without taking physical deliveries of the commodity. This can guard against heavy losses if prices swing negatively.
However, soaring volatility can limit the size of positions that traders can take on the futures market, because it makes it more expensive to do so.
Jay Ng, Vitol’s group chief financial officer and head of strategic business development in Asia, told ST that the firm has been able to “navigate physical supply risks due to our strong global network and strong logistics platform, allowing us to continue supplying our various customers”.
This involves liaising closely with its customers and using its global network to seek alternative supplies.
Vitol also continues to make prudent credit decisions in line with its credit policies given this period of enhanced disruptions in the energy markets, Ng noted.
Having a presence in Singapore also helped trading firms navigate volatile markets.
Some 350 global commodity traders have a significant presence in the Republic, which conducts close to 20 per cent of the global trading of energy and metals, and is among the largest trading hubs for agri-commodities.
Lee Pak Sing, assistant managing director for trade and connectivity at Enterprise Singapore, told ST that the concentration of traders in Singapore “creates information advantages and operational efficiencies that benefit the entire trading ecosystem”.
The clustering also enables faster decision-making during market disruptions, more competitive financing options such as loans, and expertise that supports complex, multi-jurisdictional transactions, he said.
Ng of Vitol noted that Singapore’s stable political environment and strong governance and legal structure, as well as being a top financial centre, have benefited Vitol’s operations.
Global trading houses with substantial business activities and employment in the Republic can also benefit from financial support.
The Global Trader Programme, for instance, provides firms with a concessionary tax rate on qualifying trading income for five years. Qualifying income includes income from physical trading, the brokering of physical trades, structured commodity financing activities, and derivative trading.
Peter Zaman, a partner in Holman Fenwick Willan’s commodities team, said Singapore’s reputation for stability, coupled with its strong governance standards and low levels of corruption, has cemented its position as Asia’s leading hub for commodities activities.
As many global trading and shipping companies operate in Singapore, the country has built a strong legal system for international business disputes, said Zaman.
For example, firms can seek arbitration from forums such as the Singapore International Arbitration Centre, or the Singapore Chamber of Maritime Arbitration for maritime disputes.
They can also seek the Singapore International Commercial Court for complex cross-border matters, he noted.
Trading firms also turned to banks for support in times of uncertainty.
DBS, South-East Asia’s largest bank by assets, said that it has helped some clients increase their liquidity buffers to strengthen resilience against contingencies since the war broke out.
The bank is also helping affected clients nimbly manage their cash and inventory positions, said Mr Sriram Muthukrishnan, DBS’ group head of global transaction services product management.
“We’ve been proactively engaging and advising our trade clients on a range of effective liquidity and hedging solutions,” he said.
The Middle East conflict has upended how commodities like oil make their way from producers to the pump, presenting a challenge for trading houses tapped to secure deals for customers ranging from national energy companies to shippers.
In the supply chain of petrol, a trading house can be involved in the logistics of buying crude oil from an extractor and selling the oil to refiners that may be based in other regions.
Traders are also involved in the buying of fuel from refineries and getting the cargo to distributors and petrol stations.
Vitol estimates that the oil market will lose at least a billion barrels of crude oil and refined products because of attacks on energy infrastructure in the Gulf and the closure of the Strait of Hormuz, a waterway critical to the supply of oil and gas from the Middle East to Asia.
Vitol’s Ng said the loss of supply of oil from the Middle East is driving Asian refineries to look further afield to markets like the US and West Africa.
This means that oil is taking longer to reach refineries and consumers. For example, a typical voyage from the Middle East to Japan takes 20 days, while a voyage from the US city of Houston usually takes 50 days.
Ng believes longer transit times and higher shipping costs contributed to the 10 per cent to 15 per cent fall in crude oil processing rates at refineries across Asia in the month after the outbreak of the Iran war.
The effects are also felt further down the supply chain.
Singapore commodity trader Sing Fuels, which mainly deals with bunkering or the supply of fuel to shippers, said bunker prices have risen from US$400 (S$510) to US$1,000 per tonne.
The firm said this is “significantly increasing financing requirements and creating hesitation among buyers”.
In Asia, demand in key markets such as Singapore and China has softened as buyers adopt a more cautious approach, it said.
“Access to adequate and flexible financing remains critical, particularly for Singapore-based marine fuel players operating in periods of heightened volatility,” said Sing Fuels. - The Straits Times/ANN
