Vitol urges regulators to maintain ‘integrity’ of financial markets

The world’s biggest independent oil trader has called on regulators to maintain the “integrity” of the financial markets that underpin dealings in global commodities.

In its annual results statement, Vitol said policymakers needed to consider “market integrity and liquidity” on futures exchanges, which are used by the industry to manage price risk.

“Last year the gas and power markets experienced unprecedented levels of volatility, testing the resilience of markets and their participants,” the privately owned company said. “For us, this period highlights the need for regulators to consider market integrity and liquidity during times of severe stress.”

The comments from Vitol reflect the concern felt by commodity traders, which have faced huge demands for cash to cover hedging positions.

This month, Europe’s largest energy traders asked governments and central banks to provide “emergency” assistance to avert a potential cash crunch as sharp price moves triggered by Russia’s invasion of Ukraine strained markets.

In a letter seen by the Financial Times last week, the European Federation of Energy Traders — a trade body counting commodity traders Vitol, Trafigura and oil majors BP and Shell as members — said the industry needed “time-limited emergency liquidity support to ensure that wholesale gas and power markets continued to function”.

Swings in commodity markets since the invasion of Ukraine have been sharpest in nickel, a key Russian export; prices for oil and gas, where Russia plays a central role, have also rocketed since the war began.

Exchanges play a vital part in global commodity markets by providing trading houses with futures contracts to manage risk. Without these instruments, most traders would not be able to move physical commodities.

That makes margin requirements — or demands for more cash — and clearing limits on commodity futures critical to global flows of oil and gas.

In its annual report, published last Wednesday, Glencore, one of the world’s biggest commodity traders, highlighted the “ability to finance margin payments” as one of the risks facing the industry.

Demands for extra cash to cover short hedging positions soared earlier in March, as commodity prices escalated in the wake of Moscow’s incursion into Ukraine, forcing some traders to unwind positions.

The lack of hedging activity is already being felt in futures markets. Combined open interest — the number of futures that have not been closed or delivered — in main crude and refined product contracts has hit the lowest level in seven years.

A measure of liquidity in Brent, the international oil marker, tracked by traders, has also dropped to levels not seen for many years, increasing volatility.

In its results statement, Vitol said it had traded 7.6mn barrels of oil per day in the year to December as revenues jumped 50 per cent to almost $280bn.

It did not reveal a profit figure, but last year rival traders Trafigura and Glencore posted record earnings as they cashed in on supply disruptions and rising demand as lockdown curbs eased.

Vitol also increased liquefied natural gas trading to 12.9mn tonnes, while electricity and gas volumes surged 30 per cent.

“Energy markets have responded to political events in the near term through volatility. In the longer-term trade flows will adjust, but prices are likely to remain elevated for some time,” said Russell Hardy, Vitol’s chief executive.

Brent crude was trading 6 per cent higher at $114.5 a barrel on Monday. It closed near $130 earlier this month, as traders scoured the market for alternatives to Russian oil.