October 4, 2011 [Bloomberg] - Mercuria Energy Trading SA, a Geneva- based independent energy trader, expects Brent crude to stay above $100 a barrel amid declining global inventories and rising consumption, the company’s chief executive officer said.
Crude stockpiles are about 100 million barrels less than last year in member countries of the Organization of Economic Cooperation and Development, Marco Dunand, the company’s chief executive and co-founder, said in an interview Sept. 28. Meanwhile, global oil demand will increase by about 1 million barrels a day next year, even if use drops in the U.S. and Europe, he said.
Mercuria is looking to buy energy assets at the end of this year or early next year, Dunand said. The company owns North American oil fields and coal mines in Asia and Africa, and is boosting its trading of natural gas, power and carbon. Energy trading companies buy and sell crude and refined fuels, trying to profit from short-term fluctuations in prices and mismatches in supply and demand. Owning oil fields or storage tanks give traders an asset base from which to sell.
“The market is still strong for energy, especially for oil,” Dunand said. “The economic cycle is such that better opportunities will come up at the end of this year and at the beginning of next year.”
$600 Million Spending
Mercuria’s 2011 turnover is projected to rise to $75 billion, from $50 billion last year. The company may spend as much as $600 million on assets, Dunand said in March.
Falling crude inventories and constrained production will keep Brent futures in backwardation, a market structure where near-term deliveries are more expensive than future contracts.
“There’s a big risk of a spike on the upside,” Dunand said. “Oil stocks around the world are much leaner than they were two years ago, and potentially at the end of this year they will be at the lowest level they’ve been for 10 years.”
Brent oil for November settlement fell 0.8 percent to $100.86 a barrel on the London-based ICE Futures Europe exchange today. The front-month contract was trading at a $2.03 premium to the second month futures.
Mercuria may invest in crude production in West Africa, Dunand said, without specifying which countries. It already has upstream oil assets in North Dakota’s Bakken shale area, Canada and California. The company is also developing South African and Indonesian coal mines, and has a German biofuel plant, which it hopes to link to a project in China.
Structured Trade Finance
The trader has expanded in the U.S. in the past year, adding 40 people in its Houston office to focus on gas and power markets. Closely held Mercuria employs 890 people globally.
Mercuria also created a group to carry out structured trade finance for its customers, led by Guillaume Leenhardt, formerly at BNP Paribas (BNP) SA.
“We’re actually helping people to, when and if they feel like it, take exposure off their books,” Dunand said.
Vesta, Mercuria’s logistics unit, added 1 million barrels of oil storage capacity this year, for a total of 40 million barrels. Mercuria is constructing tanks at Cushing, Oklahoma, the delivery point for Nymex crude futures.
