BP Flags Exceptional Trading Results Amid Iran War Volatility

BP has announced that it expects 'exceptional' earnings from its oil trading desk in the first quarter of its financial year, benefiting from volatile energy markets triggered by the US-Israeli war on Iran. According to multiple reports, the company's refining margins have strengthened, and its oil trading results are anticipated to be significantly higher than usual.

The conflict has caused significant market volatility, particularly after Tehran effectively closed the key Strait of Hormuz shipping route. BP reported that its refining margins rose to $16.9 a barrel in the first quarter from $15.2 a barrel in the previous three months, which is expected to boost earnings from refined products by $100 million to $200 million.

Analysts have been upgrading their profit forecasts for BP. Citi raised its estimate for BP by 20% to $2.6 billion adjusted net income in the January-to-March quarter, as reported by The Guardian. Brent crude prices have risen sharply from about $61 a barrel in January, hitting $119.50 several weeks ago after the effective closure of the strait and dipped slightly on Tuesday.

BP's update comes amid a broader context of reduced global oil demand forecasts. The International Energy Agency (IEA) cut its forecasts for global oil demand this year, warning that both supply and demand would be affected by the conflict in the Middle East. Oil demand is now forecast to fall by 80,000 barrels a day this year, marking the first annual decline since the 2020 Covid pandemic.

The Iran war has torn open a dangerous rift in global oil markets: physical crude is trading at record highs while futures benchmarks signal calm. This disconnect is forcing consumers, companies, and policymakers to navigate without a reliable compass. The blockade of the Strait of Hormuz has cut off nearly a fifth of global oil flows, triggering acute supply shortages in Asia, Europe, and forcing Gulf producers to shut in around 9 million barrels per day (bpd) of production.

Global benchmark Brent crude futures surged 64% in March, setting a record monthly gain, to a peak of $118 a barrel. Prices then fell back to around $95 after the U.S. and Iran agreed to a ceasefire on April 7. However, after the failure of talks to end the war, U.S. President Donald Trump imposed a blockade on ships entering and exiting Iranian ports and coastal areas, pushing prices back up to around $100.

Prices paid by refineries for oil needed to make products such as gasoline, diesel, and jet fuel have reacted far more forcefully. Dated Brent, which refers to the price of physical crude delivered to northwest Europe, is trading at $120 a barrel - about 65% above pre-war levels and the highest since 2022. Other physical benchmarks have surged to record highs, pointing to an acute supply shortage.

BP's new CEO, Meg O'Neill, who took over this month, has promised to continue her predecessor’s shift away from low-carbon projects into oil and gas to increase profitability. She will face shareholders at the company's annual meeting on April 23.

The trading desks of Europe's top three oil majors have reaped billions of dollars from the energy supply crunch caused by the Iran war, eclipsing their more cautious U.S. rivals and helping offset the conflict's impact on their production operations. Together, the trading desks at BP, Shell, and France's TotalEnergies made at least $2.5 billion in the first quarter.

European majors have spent decades building trading desks, employing hundreds of people who buy and sell crude, fuels, and gas to take advantage of price gaps across regions and time periods, while also taking positions in derivatives markets. Companies with large trading operations can turn volatility into earnings - a model that has paid off amid the Iranian crisis.

U.S. majors Exxon Mobil and Chevron mainly use traders to optimize flows within their own networks of production, refineries, and fuel retail outlets. This approach prioritizes predictability but limits opportunities to profit from extreme market moves. These divergent strategies have been reflected in the companies' stock performance, with shares in BP, TotalEnergies, and Shell gaining significantly since the start of the conflict.