Interview
Why European oil companies are doing better than America's | The Economist
- European majors are projected to sustain highly lucrative trading operations for several years before profits likely shrink and engineering roles regain dominance over dealmaking.
- Trading volumes for the European trio (BP, Shell, TotalEnergies) currently reach 40 to 50 million barrels per day, representing five to 10 times their production capacity, with volumes expected to increase further during volatile market periods.
- Annual profits from trading for BP, Shell, and TotalEnergies are estimated between $10 billion and $15 billion, potentially accounting for one-fifth of total profits and adding up to one-third to their return on capital.
- European majors maintain near-zero annual losses by actively correcting bad bets, resulting in a profit profile that yields modest returns in poor years and significant gains in strong years.
- American majors, previously hindered by insufficient resource allocation and forced sales of company barrels, are now executing determined strategies to become major global recruiters and are expected to continue closing the performance gap over many cycles.
- ExxonMobil and ADNOC are identified as aggressive recruiters, alongside European majors, while national oil companies like Saudi Aramco also plan to expand into the trading sector.
- Immediate future hiring is characterized by American and national oil companies becoming among the largest global recruiters of traders, driven by estimated profit per head of approximately $10 million in good years.
- Trading operations are expected to drive outperformance for European majors over American majors this year, particularly following the crisis that began in February, as price disparities from wars and supply shocks create opportunities for arbitrage.
- The competitive landscape may not shift significantly for many years, as American majors require "well-oiled race car" capabilities involving data analysis, crisis execution, and system tuning across multiple cycles to fully catch up.
- If the current trading boom ends or competition intensifies, the industry outlook suggests a structural shift where engineers may again become the ascendant force compared to traders.