E-mail slip gives peek at Chevron’s energy trades

A nightmare mistake for one energy company employee has been a dream-come-true for several reporters.

On Friday, an employee with Chevron Corp.’s business risk unit accidentally sent an e-mail detailing profits from its Houston-based energy trading business to several news outlets. According to the reports from those organizations, the spreadsheets show almost two-thirds of Chevron’s profits so far for 2011 came from trading gasoline, heating oil and diesel.

“The second-largest U.S. oil company had year-to-date profit of $263.9 million from products trading in the Americas and Atlantic region as of yesterday, compared with $99.9 million from trading crude oil and liquefied petroleum gas, according to an internal document about trading,” Bloomberg wrote in its version of the story.

The Dow Jones version of the story that “… As of July 14, Chevron traders were involved in contracts to buy or sell at least 27 million barrels of oil and products in the physical and derivatives markets, enough to cover more than a day of U.S. demand.”

The employee appears to have been trying to send more routine information to the news outlets on Friday when the mistake occurred.

At least one other news organization, Argus Media, also received a copy of the documents, but Argus did not write a story on it.

In a statement to the news organizations, Chevron said it “is extremely disappointed” that they chose to publish information after being told it was accidental.

Chevron reports its quarterly earnings on July 29.

As both articles note, energy trading operations are common among many of the oil majors, with BP and Royal Dutch Shell also having active Houston-based trading operations.

The trading can be used for both the marketing of the physical oil, natural gas and gasoline the companies produce, as well as for locking in prices for the buying and selling those same products through financial trades known as hedges.

The companies can also use their in-depth knowledge of the physical energy markets to speculate on future commodity prices. From the reports, it appears Chevron has been doing quite well on its speculative trading.

Commodity speculators at banks and hedge funds have largely been blamed by pundits as the cause of run-ups in oil and gasoline prices in recent years, but a recent report by the Government Accountability Office notes that such trading organizations may not be doing as well as one might expect.

The report, which looks at all proprietary trading by several major institutions — not just commodity trading, since not all banks trade in commodities — notes that such operations account for a relatively small portion of revenues for the firms during good times but a disproportionately large portion of their losses during downturns.

“In 13 quarters during this period, stand-alone proprietary trading produced revenues of $15.6 billion—3.1 percent or less of the firms’ combined quarterly revenues from all activities.”

“But in five quarters during the financial crisis, these firms lost a combined $15.8 billion from stand-alone proprietary trading—resulting in an overall loss from such activities over the 4.5 year period of about $221 million.”

12 Comments

  1. Hotpuppy

    And of course what is really going on is that the end-users are getting burned by the oil companies betting on their own markets. Trades are in-fact bets…. unless you engage to buy or sell which isn’t what the majority of the market is about. Just one more example of why commodities reform is needed. If you want to gamble, go to Vegas.

    #1
  2. Fervor

    Don’t you hate when that happens???

    #2
  3. Helen

    Please be careful not to paint all energy companies with the same brush. Very few of the energy companies participate in these trades, and most don’t.

    #3
  4. gastonglock

    Good, now maybe they will make yet another mistake and accidentally grant a pension increase after an eleven year dry spell. Come on Chevron, give us retirees a break.

    #4
  5. MargaretH

    Come on, if you work in an office you know how Outlook works. He/She “accidentally” sent the email to news organizations. Yeah, right!

    #5
  6. DucMan

    MargaretH – and of course you’ve never made a mistake and sent an email to the wrong person or accidentally sent the wrong attachment. Come on, mistakes happen, even to Outlook experts.

    #6
  7. eiioi

    Tom, you wrote:
    “According to the reports from those organizations, the spreadsheets show almost two-thirds of Chevron’s profits so far for 2011 came from trading gasoline, heating oil and diesel.”

    Am I missing something here? 1Q profit was 6.21 billion. Let’s assume 2Q profit was about the same, giving a 1H profit of about $12 billion.

    $363.8 million divided by $12 billion is not 2/3. It’s more like 3%. Kinda changes the story, doesn’t it?

    #7
  8. Sure looks like a tidy earning over their other areas. Sometimes you don’t have to look at how you are getting screwed, it just comes to you.

    #8
  9. Observer

    Maybe they should just spin-off the trading unit as a stand alone company so shareholders could really make some money unless perhaps there is some doubt about the quality of these earnings.

    Why did you muddle the story by supplying the data on “all proprietary institutions”. Readers are left with the tempered understanding of how much is in fact earned by participants in this market but what about other energy companies.

    Unless this “error” is catching or the SEC requires a breakout, we will likely never know. However, a profit center of material size presumably is already required to be broken out of the financial data so maybe profits from trading are not that enormous afterall compared with the income generated by the rest of the firm’s activities.

    #9
  10. Tom Fowler

    Observer:
    I didn’t have a report on other energy company trading to include in the piece. It just so happened GOA put out that report late last week and I thought it interesting as it might (or perhaps might not) relate to overall speculative trading. I have assumed banks did much better consistently in their propietary trading and that it played a bigger role in their earnings.

    #10
  11. Tom Fowler

    eiioi
    I say “according to the reports” because that’s exactly how they wrote the stories (check the links). I don’t know how they defined it as I wasn’t one of the fortunate few to receive the e-mails.

    #11
  12. Oil is Good

    Stop bashing oil companies. They are not screwing you. In contrast, they pay huge sums to obtain a finite resource from across the planet, move it at tremendous expense and risk to refineries strategically placed to maximize supply efficiency, refine that resource into over 300 useful products (most of which you probably don’t even know exist) and then move the final product to a gas station only a few miles from your house. You should just say “Thank You”.

    If you want to benefit directly from their profits, buy their stock. My Chevron stock is doing quite well.

    The purpose of an oil company is not to provide you with cheap gas, their purpose is to make profit.

    Grow up, whiners.

    #12