A grim X'mas, bonus blues for oil traders

SINGAPORE - It will be a blue Christmas for most oil traders here this year.

They can forget about receiving the equivalent of last year's bonuses of 6-12 months, industry players told BT.

"They'll be lucky if they can get 1-3 months, if any at all," one trading boss said.

"Some may not even keep their jobs, as it was difficult to deliver results in a market that was largely in backwardation for most of the year," another said, referring to the market condition in which the futures price of oil is lower in the distant delivery months than in the near delivery months.

In fact, a top trader described 2012 as the toughest year he could recall.

This sentiment was echoed by another trader, who said the last time he was in such a difficult market was in the mid-1980s, during an oversupply of crude.

"This time around, it's essentially due to the lack of oil demand because of sluggish global economies," the trader said.

The trading boss said the oil market has been in backwardation for the past 6-9 months, affecting trading in products from fuel oil to gas oil and middle distillates.

Only the light end of the barrel, like gasoline and naphtha, was spared, so a lot of traders got hit, he said.

The tough fuel oil market, for instance, saw Swiss commodity giant Glencore - which controls listed marine fuel supplier Chemoil Energy - selling off Chemoil's Helios Terminal in Singapore in October. 

"Essentially, it was not worth it for them to keep a storage facility," the trading boss said.

Recent reports said losses for the quarter ending Sept 30 due to the challenging fuel oil and bunker market caused Chinese oil trader Brightoil Petroleum, one of the biggest fuel oil traders here, to also expand and diversify into crude oil trading.

The losses - plus, apparently, some disagreement over strategy, according to a source - led to a reshuffle which saw Quek Chin Thean, Brightoil's Singapore- based chief executive of fuel-oil trading and bunkering, leave the company last month.

He had joined Brightoil in 2010, pulling with him a team of traders from BP; at least three of those traders have reportedly left in recent months.

The trading boss, asked how many traders here have lost their jobs this year, said: "It's a revolvingdoor situation; it's like musical chairs."

"They find jobs at other trading houses, some after serving out some gardening leave."

There is, however, a new reality check for those oil traders with big salary expectations, he stressed.

"Those who expect a couple of million dollars upfront signing fees, plus an annual US$450,000 salary with a 20 per cent profitsharing contract will now have to adjust to this."

"The market has reacted and senior traders can now expect an annual salary of only US$250,000 to US$350,000 with 20 per cent profit-sharing - but only if they achieve targets."

Moderating the overall gloomy picture, the top trader said that while 2012 was an exceptionally tough trading year, many players are in the game, and if most had a tough time, there were also some for whom this would have been a record year of profits.

One bright spot is that the market has also started shifting back to contango for fuel oil in the last couple of months, he said.

This will benefit traders with storage capacity, given that contango is the market condition under which the price of a forward or futures oil contract is trading at above the expected spot price at contract maturity.

While the trading boss reckons the outlook in the next 6-12 months is still uncertain, the other trader expressed hope that the eurozone and US economies have nearly bottomed out, and that things can start to look up next year.