Energy Trading, Commodities and Risk Management

Between the well, the mine or the power plant and the final buyer sits a layer of companies that own almost no reserves and make most of their money from moving, storing, blending and pricing energy. In 2022, the year Russia invaded Ukraine, that layer had its best year in history: Vitol, the largest independent oil trader, reportedly earned ~$15bn of net profit, more than many oil majors; Trafigura reported a record ~$7.0bn for its year to September 2022; Glencore, Gunvor and Mercuria also posted records (company reports and press, reported). The same price shock nearly broke Europe's utilities: Dutch TTF gas settled near ~€340/MWh (~$100/MMBtu) in late August 2022, and producers and utilities that had sold their output forward on exchanges faced margin calls in the tens of billions of euros, forcing Germany to rescue and then nationalise Uniper and Nordic governments to offer emergency liquidity lines. Trading is the part of the energy business that turns physical constraints (a full tank in Cushing, a closed pipeline, a cold snap, a ship stuck outside a strait) into prices, and that decides who carries the risk when prices move. This section explains the physical trader's model (arbitrage in space, time and quality, plus logistics and balance sheet), the benchmarks and price-reporting agencies that set the prices everyone else uses, futures, swaps, options and clearing, how producers, utilities and consumers hedge and where basis risk bites, the margin-call crisis of 2022 and the LME nickel squeeze, the financial results of the trading houses through the 2022 peak and the 2024–25 normalisation, the bribery, sanctions and fraud cases that define the industry's licence to operate, and how trading desks measure and limit risk. A stylized worked example prices a contango storage trade and stresses its margin calls; a checklist sets out diligence questions for any trading or hedging business.