The trading unit of ExxonMobil retreated from its activities after the company slashed the units funding, amid deep spending cuts due to the pandemic, sources quoted by Reuters said.
Firstly, deep spending cuts that the company prompted as a way to reduce risk, left Exxon’s traders without the possibility to harness the huge profit opportunity that trading represents.
Secondly, with the oil prices crashed below zero at one point during the first quarter of 2020, oil majors bought oil barrels to re sell them when prices got stable.
As we have reported previously, oil giants like Royal Dutch Shell doubled their 2020 trading profits to $2,6 billion, out of that practice. Likewise, bp’s trading arm earned about $4 billion out of trading also. Such profits helped both companies shield from the full hit of the pandemic.
Nevertheless, Exxon avoided the risk that trading represented and pulled off most of the capital needed for speculative trades. In fact, sources quoted by Reuters said the company limited most traders with high-level management reviews.
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After trading retreat, Exxon faced further setbacks
Also, sources say that the company limited traders to work only with longtime Exxon customers. Consequently, traders were restricted to mostly routine deals, rather more risky moves.
Moreover, the trading retreat by Exxon would have happened after the company had worked for three years to bolster the unit with new facilities; also, high-level hires and new tools for traders for them to take more risks.
However, the clash of the pandemic caused the exodus of most of those high-level traders; the company then downsized the whole department amid broader capital cuts. “They were careful with capital during a period of time when they maybe shouldn’t have.” Said one of the sources.
Indeed, the company announced in late 2020 an historic net loss of $22,4 billion. Such plunge came with further setbacks for the company; according to Reuters, Exxon’s stocks dropped to their lowest level in nearly two decades, and the company got removed from the Dow Jones Industrial Average.
Finally, the company said in October, 2020, that by the end of this year it would eliminate 14,000 jobs; which is around the 15% of all its workforce, by the end of 2021.