FEATURE: European oil traders ponder role in changing market

London — For European oil traders, 2020 has been a year of change in a market whose volatility has been a boon for many, while the closure and conversion of refineries has left some questioning their long-term career plans.

Most say they are not worried about their jobs changing massively or disappearing in the near term, but many acknowledge their roles may change in the future, with fewer crude oil traders around as a result.

"[Crude trading] is not going anywhere fast, not in the next 10-15 years. But it is a dying art," one London-based trader said.

In Europe, the refinery industry was already facing waning demand for fuels and increased global competition before COVID-19 accelerated closures and conversions, with many oil companies implementing plans to switch away from or reduce their fossil fuel output.

Refiners across Europe have renewed their focus on non-crude activities from Neste and Preem in Scandinavia closing refineries and making a bigger push into biodiesels, to Total saying it would convert its French Grandpuits refinery "into a zero-crude platform".

"Some refiners are opting to transform their traditional refineries to bio, like Total, Repsol in Cartagena. At some point, these people will be out of the crude market," a refinery trader said.

"This is an inevitable trend, at least for those with simpler refineries but those with FCCs and hydrocrackers won't switch. They have a few years left."

Closures

However, the acceleration of closure and 'temporary' shutdowns due to languishing demand has grown in every corner of Europe:

Gunvor decided to mothball its Antwerp refinery, while Croatia's Rijeka stopped processing in November until January. Total halted operations at its 220,000 b/d Donges refinery temporarily due to weak margins and Petroineos is looking to mothball two units at its Grangemouth refinery in the UK. In Spain, Repsol is halting a crude distillation unit at its Bilbao refinery until market conditions improve, after taking fluid catalytic cracking units offline at Bilbao and Coruna and Cepsa's La Rabida will keep two units offline, while in neighboring Portugal, Galp has halted processing at Porto for the second time this year.

While COVID-19 has been the imminent threat to the oil industry, traders pointed to legislation on both a national and EU level as a major driving force for industry changes in Europe.

"When it comes to things like biodiesel, you have to look at regulation. Finland incentivized Neste, and now they are into animal fat trading in Latin America," a Geneva-based trader. "So it is had a big push from EU incentives, but I do not see it affecting crude differentials."

Neste was a regular buyer of Russia's Urals crude and its intake of the grade has not dropped, the trader said. "Right now, I do not see them minimizing their Urals intake. Can they go there? Sure, but that is going to require more push from EU legislation."

As EU refineries switch, the overall headcount on trading and origination desks may not shrink that much, traders said.

New jobs

"Biofuels actually requires more people. It is not as simple as old-fashioned fuel production. Supplying feed[stock] is difficult and takes place in different parts of the world. Imagine sourcing 100,000 mt renewable feedstock compared to a [simple] cargo of Urals," a second refinery trader said.

While the peak of oil demand in Europe may have passed, the pace of switching from fossil fuels to biofuels will not happen overnight.

The growing pie that is Asian demand for crude and products will require crude traders to facilitate those flows. It may be that while local demand becomes lower, European traders, particularly those employed in trading houses, will have the majority of their counter-parties in countries such as China and India.

However, there was a growing nod to the changing market, with some traders saying they may be some of the last in the role and were contemplating their futures in the industry.

"I do sometimes think 'Do I need to move to a company that is more set up for a greener world?' I think by the end of my career, I will maybe just about still be in oil, but probably not," said one trader.

A second trader mused that in the next decade, biodiesel and LNG trading will likely become more interesting than crude trading, while a third said he and colleagues joke about moving to a social media company.

Still, oil traders remained relatively sanguine.

"I will quite happily say that the oil industry has absolutely no future and that I have chosen a career in an industry that is dying... and I regret it but hey ho, here I am...we will put more than ever before into renewables," the London-based trader said.

"But we need to realize that globally we rely so much on what is basically a miracle (oil) that we cannot just drop it overnight...But regardless, the oil industry dies [eventually]. I am just here to make some money before it does."