A naval buildup was an unusual buy signal. TotalEnergies’ traders spotted US warships in the Gulf in February and bought into a falling market, “saying something was about to happen,” CEO Patrick Pouyanné told Le Figaro, according to Reuters. Reading the geopolitics got TotalEnergies into the trade, but ships, storage, and the right barrels turned it into money.

The right barrels were the ones outside Hormuz, and TotalEnergies bought up every one it could. In March, it took every cargo of UAE and Omani crude loading in May that was available to buy, around 70 cargoes, Reuters reports. By pairing the barrels with futures, options, and swaps, it made more than USD 1 bn, the Financial Times reported, citing a person close to the company. It was the sole buyer of Middle East crude that month, taking about 35 mn barrels, and its buying helped send Dubai, the main benchmark for Middle East crude sold to Asia, to a record of nearly USD 170 / bbl, according to trade data cited by Reuters.

TotalEnergies wasn’t the only major to come out ahead. TotalEnergies’ 1Q net income rose 29%, driven by March trading, and Shell’s 1Q adjusted earnings hit a two-year high of USD 6.9 bn, helped by war-linked gains, Reuters reported. The Economist estimates that BP, Shell, and TotalEnergies could earn USD 15-20 bn in pre-tax trading income this year.

Trading desks make money when prices pull apart

The three majors trade far more oil than they pump. Their desks handle the equivalent of 40-50 mn bbl / d, 5-10 times what they produce, and nine-tenths of it comes from outside the company, according to The Economist.

SOUND SMART- A trading desk buys and sells crude, fuels, and gas, including other producers’ output, and arranges the ships, storage, and financial contracts needed to move it or wager on it.

The money comes from price gaps. “The real money is in dislocation, not direction,” Baron Lamarre, former head of trading at Petronas, tells EnterpriseAM. “When prices move fast, spreads open up everywhere — between crude grades, between regions, between near-term and forward delivery.”

A trader’s job is knowing which gaps are worth closing. A refinery scrambling for replacement supply may pay more than a seller elsewhere can get at home, and a buyer who needs oil this week may pay more than one who can wait a month. As we’ve explained before, the gap between paper prices and physical barrels can widen when cargoes get harder to secure.

Think of it as a delivery problem with a trading screen attached. A trader buys a cargo, lines up a buyer willing to pay more, and books the ship to connect them. The price difference is only the starting point, since expensive freight, a delayed delivery, or an unavailable berth can swallow it.

Freight moves before prices do

The first clues are in the cost of moving oil. Lamarre says the first thing he’d watch is “physical signals, not headlines.” His checklist covers war-risk ins., tanker charter rates, the gap between prompt and future prices, and how quickly bypass pipelines ramp up. Together, those show where moving a barrel is getting harder and where an alternative is worth more.

The scramble starts before anyone runs short. “Uncertainty moves markets in hours,” Lamarre says. “The repricing of risk across freight, ins., grades, and storage — that happens in days.” Buyers racing to lock in their next delivery and shipowners rethinking a dangerous voyage can change the economics of a trade long before a shortage arrives.

The biggest windows open early. They come “in the first two to four weeks, when the market is simultaneously panicking and mispricing,” Lamarre says. “After that, physical reality reasserts itself and spreads compress.” Shell’s July update suggested this year’s gains ran past that first rush. It guided for 2Q gas trading significantly above 1Q and for trading in its products division, which runs its oil trading, in line with its strong 1Q, Reuters separately reported.

Optionality is the real asset

Owning barrels outside Hormuz suddenly mattered. On 2 March, Platts suspended nominations for its Dubai benchmark of crude grades that need a Hormuz transit. With fewer contracts trading, only TotalEnergies secured enough partial contracts to make up a whole cargo in March, the FT reported. Buyers on long-term contracts pegged to Dubai paid the higher prices, and some Asian buyers lobbied Saudi Aramco, without success, to switch to pricing off ICE Brent futures, according to an Argus note cited by the FT.

Knowing where the oil is only gets you so far. “Intelligence gets you in early — you know what’s happening before the price fully reflects it. But without ships, storage, or pipeline access, you can’t act on what you know,” Lamarre says. TotalEnergies used its own assets to take delivery at the Fujairah terminal, just outside the Gulf, Pouyanné told Le Figaro. “It could have turned out badly, because had the Strait of Hormuz been shut immediately we would have been physically prevented from filling up our cargoes in the region,” he said. He told the French parliament that other trades in the same period lost money.

Flexibility is cheapest when nobody wants it. Optionality means being able to choose “which route to use, whether to deliver or store, which buyer to serve,” Lamarre says. “In calm markets it’s cheap, which is exactly when you want to accumulate it: multi-destination shipping contracts, flexible offtake agreements, pre-positioned inventory at key hubs.” The point is to negotiate room to maneuver before everyone wants the same ship, storage tank, or loading slot.

Sometimes the stronger position is having the ship booked. “If you’ve locked in shipping at pre-crisis rates, that contract is suddenly worth far more than its face value,” Lamarre says. A trader with transport already secured has a lower cost base than a competitor booking the same voyage after freight rates jump.

It takes a big balance sheet. “If you can’t finance large floating cargoes for a month or two, you can’t capture the spread,” Lamarre says. A good trade is of little use if the company can’t pay for the oil while it’s at sea or meet the margin calls on its financial positions.

Volatility is becoming the business model

The majors are building their trading arms for a more volatile world. Firms scaling up in trading “are essentially positioning for a world where volatility is the baseline, not the exception,” Lamarre says. This year’s top earners “weren’t necessarily the ones who predicted the crisis — they were the ones who had built enough flexibility that they could respond faster than competitors once it started.”

The barrel is only part of what’s being traded. “Oil is a supply chain, not just a commodity,” Lamarre says. Finding the ship, securing the terminal, financing the voyage, and switching buyers when needed are what turn a price gap into a return.

Gulf producers want a seat at the desk. Adnoc has trading desks in Singapore and Geneva, with one planned in Houston, and has lately been among the world’s biggest recruiters of traders, according to executive-search firm HC Group. Aramco bought Texas-based Motiva Trading in 2023. Closing the gap with the European majors, which built their trading arms in the 1980s and 1990s, could take years, The Economist reports.

The majors are also locking in supply and partners. TotalEnergies struck an agreement with Bahrain in January to jointly trade the output of the country’s sole refinery, per The Economist. Eni and Mercuria signed an agreement in July to set up a global trading joint venture, which still needs regulatory approval.