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Exxon Declined from Oil Trading in Pandemic

Exxon Mobil tries to build an energy trading business to compete with European oil majors unraveled quickly last year. The firm slashed the unit’s funding amid broader spending cuts.The cuts left Exxon traders without the capital they needed to take full advantage of the volatile oil market. The pandemic sent prices to historic lows – with U.S. oil trading below zero at one point before a strong rebound. This created a profit opportunity for trading operations willing to take on the risk.

Exxon systematically avoided risk by pulling most of the capital needed for speculative trades, subjecting most trades to high-level management review, and limiting some traders to working only with longtime. Traders were restricted to routine deals intended as a hedge for the firm’smore traditional crude and fuel sales rather than gambles seeking to maximize profit, four of the people said.

The trading retreat came after the firm had worked in the previous three years to bolster its trading unit with revamped facilities, high-level hires and new tools to help traders take on more risk. The company’s cautious strategy in the pandemic sparked the exodus of some of those senior-level new recruits, along with Exxon veterans, as the company downsized the department amid broader spending cuts, according to the people familiar with its trading operation.

The trading retreat came as the company overall posted a historic $22.4 billion net loss in 2020. It does not separately report the performance of its trading unit. Some of Exxon biggest rivals made enormous trading profits last year as their traders bought oil and stored it when prices plunged, then sold it at higher prices for future delivery. Rival Royal Dutch Shell announced in March that it doubled its 2020 trading profits to $2.6 billion over the previous year. BP Plc trading arm earned about $4 billion, a near record.

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