Interview
Why European oil companies are doing better than America's | The Economist
- European energy majors (BP, Shell, Total) generate trading volumes of 40–50 million barrels daily, which is 5 to 10 times their actual production, making trading central to their current profitability.
- Trading profits for the "Big Three" European majors are estimated at $15–20 billion this year, potentially accounting for one-fifth of total profits and adding up to a third to their return on capital.
- The intelligence advantage driving these European profits stems from the majors' vast global networks of refineries, storage facilities, and tanker fleets, which provide superior real-time data on supply, demand, and price volatility.
- European majors have historically outperformed American rivals because European entities lacked domestic resources, forcing them to develop trading capabilities after losing production access during 1970s Gulf nationalizations; conversely, US majors historically prioritized domestic resource exploitation and marketing over independent trading.
- American majors previously failed in trading due to half-hearted execution, insufficient capital allocation, and a lack of independence for traders who were forced to sell only the companies' own barrels.
- American majors (specifically ExxonMobil) and state-owned National Oil Companies (Saudi Aramco, ADNOC) are currently the largest global recruiters of traders, signaling a serious, well-funded shift toward competitive trading operations.
- Despite aggressive recruitment and increased funding, US and National Oil Companies face a multi-year lag before matching European efficiency, as building a profitable, agile trading desk requires multiple market cycles to refine.
- European trading desks operate with high lean efficiency, utilizing teams of roughly 60–70 core traders supported by a total staff of 1,000–2,000 within companies of ~100,000 employees, yielding profit per head of approximately $10 million in good years.
- While the Iran war and supply shocks have currently boosted margins, the transcript suggests European majors will maintain a multi-year lead, though competition is increasing and may eventually shrink profits, returning dominance to engineering-focused operations.