Big Oil's Trading Arms Struggle to Navigate Trump-Era Volatility: Shell and TotalEnergies Report Mixed Earnings

Big Oil companies' trading divisions struggle to navigate Trump-era volatility due to unpredictable oil price swings caused by geopolitical tensions. Low volatility is also detrimental to these divisions, as seen in Trafigura's 73% drop in net profit last year. Shell and TotalEnergies have reported mixed earnings, with Shell's net income declining 30% YoY and TotalEnergies' net income falling 31% YoY. CEOs of both companies have emphasized a fundamentals-based trading approach and the importance of prudent risk management in uncertain market conditions.

In the past decade, major oil companies have established separate trading divisions that have become significant profit drivers, especially during periods of high market volatility. These divisions, which handle more barrels than leading commodity traders, often benefit from unpredictable price swings. However, the Trump era has presented unique challenges, with geopolitical tensions causing unpredictable oil price movements that have made trading difficult for Big Oil companies.

Shell Plc (NYSE: SHEL) and TotalEnergies (NYSE: TTE) have reported mixed earnings, with Shell's net income declining 30% year-over-year (YoY) and TotalEnergies' net income falling 31% YoY. Both companies have emphasized a fundamentals-based trading approach and the importance of prudent risk management in navigating uncertain market conditions [1].

Geopolitics-led volatility has been particularly challenging for Big Oil crude traders. Trump's military maneuvers, social media posts, and tariff threats have created market turbulence that is hard to trade on. Shell CEO Wael Sawan pointed out that market turbulence not related to demand and supply dynamics is difficult for Big Oil traders, who prefer to sit out price swings rather than chase every movement [1].

In contrast, low volatility has been detrimental to these divisions. Last year, Trafigura Group saw its net profit drop by 73% to $1.47 billion, the lowest for the company since 2020, due to low market volatility [1].

U.S.-based oil majors, such as Exxon Mobil (NYSE: XOM), have been less affected by the chaos in oil trading markets, which are usually dominated by European peers. However, U.S. energy companies are expected to post another lackluster earnings season due to low oil prices [1].

The energy sector is expected to post the lowest profit growth among the United States' 11 market sectors at -24% due to lower oil prices [1].

References:
[1] https://oilprice.com/Energy/Energy-General/Big-Oils-Trading-Arms-Struggle-to-Navigate-Trump-Era-Volatility.html