An oil pump in the desert oil fields of Bahrain. Commodities trader Vitol is warning oil prices may rise to record levels if geopolitical risk intensifies, particularly in the Middle East.
The world's largest independent oil trader has warned that oil prices could jump this year to a record high above $150 (U.S.) a barrel, owing to growing tensions with Iran.
Ian Taylor, chief executive officer of Vitol, said on Tuesday that the commodities trading house's main scenario was for crude oil prices to remain at about current levels of $120 a barrel for the balance of 2012. But he warned: "Geopolitical risk, especially in the Middle East, creates potential material risk to the upside."
In an interview with the Financial Times, Mr. Taylor said that oil prices could even surpass the record high of nearly $150 a barrel set in mid-2008. "It is unlikely, but it is possible," he said when asked whether prices would rise to a new record.
The bullish outlook comes as oil executives, traders and policy makers warn about rising prices during International Petroleum Week, the annual gathering of the industry this week in London.
Brent, the global oil benchmark, touched an eight-month high of $121.15 a barrel on Monday as supply outages in South Sudan, Yemen, Syria and Libya, and the fear of a significant disruption in Iran, outweighed a slowdown in demand growth.
"The supply side of the market is a mess," Mr. Taylor said. "Demand, even if not great, continues to grow. So it's difficult to see much price downside from current levels," he added, echoing what is becoming an industry consensus.
If oil prices remain at current levels, as Vitol is predicting, it would mean that 2012 would set a record annual average. Brent averaged $109 a barrel last year, setting an all-time high above the previous average record of $98.40 a barrel in 2008.
Vitol's comments came as the Switzerland-based trading house reported record revenue and volumes in 2011. Vitol, which is privately owned, does not disclose profitability. The company ranks as the world's largest independent oil trader, ahead of rivals Glencore International PLC, Trafigura, Mercuria Energy Group Ltd., and Gunvor Group Ltd. It also competes with the in-house trading arms of BP PLC, Royal Dutch Shell PLC and Total SA of France.
Vitol said that revenue rose last year to a record $297-billion, up 44 per cent from $206-billion in 2010, on the back of rising volumes and prices. Commodities trading houses achieve slim margins and industry executives believe that the difficult trading conditions of last year meant that Vitol earned between $1.5-billion and $2-billion in the year, below its record high of $2.3-billion set in 2006.
The Geneva-based company said that its total trading volumes reached 457 million tonnes, up roughly 14.5 per cent from 399 million tonnes in 2010, as the trading house boosted some of its non-oil businesses, including emissions and coal.
Vitol, which was founded in 1966 as a pure middleman, is expanding into oil exploration and production, refining and retail marketing.
"We are looking at multiple M&A [merger and acquisition]opportunities in downstream, mid-stream and some in the upstream too. The deals in exploration and production would be more ad hoc," Mr. Taylor said, adding that "the investments in downstream and mid-stream are more strategic because they offer more obvious current synergies with the trading business."
Vitol launched a new African downstream company, called Vivo Energy, in December, buying with Africa-focused private equity Helios Investment Partners some assets from Royal Dutch Shell for $1-billion. The trading house also expanded its business of aviation fuels, becoming the first new company to start supplying London's Heathrow airport since 1987.