Big US commodity houses were wrongfooted by the Iran war, lose over $10 billion in oil

Big US commodity houses got hit hard in oil after the US-Israel war in Iran smashed the market’s old bet, according to a new study by Oliver Wyman which said these major trading groups lost over $10 billion at the start of the conflict.

More than 100 fuel tankers were stuck in the Gulf, oil shot higher, and companies that normally make money in chaos were suddenly losing so much on both trades and cargoes.

How commodity traders got the oil call wrong and paid for it… in cash

The pain also spread through the physical oil business. Cargoes that had already been sold for delivery later could not move as planned once the war jammed shipping in the Gulf, which left traders and oil companies with a nasty problem of delivery promises to keep but original barrels bringing trapped, so replacement cargoes had to be bought at much higher prices. You following?

Anyway Alexander Franke, whose Oliver Wyman’s head of risk and trading, said the early losses ran into the “billions of dollars.”

“For most participants the situation was a surprise. Before the war started, there was a strong conviction in the market that prices would fall, and because of the war, they spiked.”

That is the whole mess right there. The trade was leaning one way, and war sent oil hard in the other direction.

The Financial Times had earlier reported that Vitol, Trafigura, and Mercuria all took losses in the first days of the war. Some of those losses have since been reversed, but the first hit was still severe.

Traders with cargoes already on the water also got slapped with large margin calls when Brent crude futures jumped. That happened because a short futures position is often used to hedge a physical cargo. A margin call is not the same as a final loss, but it still forces a trader to post a lot of cash very quickly. So when oil is rally, of course that cash demand gets ugly fast.

That blow landed on an industry that had already cooled from its monster years. Oliver Wyman said gross margins for trading houses slipped to $92 billion last year, the lowest level since 2021 and far below the $145 billion peak in 2022. The report said metals trading was the one bright spot, with profits up 20%, while profits from oil desks fell 15%.

The report also said the industry’s “seat cost” rose by more than 30% since 2021.

At the same time, Oliver Wyman estimated future baseline annual earnings for the industry at $90 billion to $110 billion, not counting the mountain of geopolitical issues we got.

Oil prices rally back above $100 as Gulf traffic dries up

By Sunday, the market was staring at a new leg higher in oil. US crude for May delivery jumped 8% to $104.40 a barrel by press time. Brent for June delivery climbed more than 7% to $102.51. Prices surged as the US Navy prepared to impose a blockade on Iran’s ports after peace talks broke down over the weekend.

US Central Command, or CENTCOM, said Sunday that the military would blockade all maritime traffic entering and leaving Iranian ports Monday morning. It also said the US would not block vessels going to or from non-Iranian ports. CENTCOM said:-

“The blockade will be enforced impartially against vessels of all nations entering or departing Iranian ports and coastal areas, including all Iranian ports on the Arabian Gulf and Gulf of Oman.”

Earlier that same day, President Donald Trump had threatened to blockade the Strait of Hormuz after the US and Iran failed to reach a deal to end the war during talks in Pakistan. Tehran then tied safe passage during the ceasefire to its own approval.

Ali Akbar Velayati, a senior adviser to Supreme Leader Mojtaba Khamenei, said Sunday that the “key to the Strait of Hormuz” remained in the hands of the Islamic Republic, state news outlet Press TV reported.

Shipping data showed how thin traffic had become. LSEG data showed that only three supertankers made the journey on Saturday. Each vessel can carry up to 2 million barrels of oil. Before the war, more than 100 vessels a day were making that trip. On the diplomatic side, Vice President JD Vance, who led the US delegation, said the talks failed because Iran would not give an “affirmative commitment” that it would not seek a nuclear weapon. He told reporters in Islamabad, “The simple question is, do we see a fundamental commitment of will for the Iranians not to develop a nuclear weapon. We have not seen that yet, we hope that we will.” Iran’s parliamentary speaker, Mohammad-Bagher Ghalibaf, said the US “failed to gain the trust of the Iranian delegation in this round of negotiations.”