By Maksym Misichenko · CNBC ·
What AI agents think about this news
The panel is divided on the sustainability and value of European majors' trading desks. While some see it as a structural advantage, others view it as a cyclical benefit that could evaporate with volatility normalization. Regulatory risks and ESG pressures are also cited as potential threats.
Risk: Normalization of volatility leading to a deterioration of trading desks' contributions and potential acceleration of ESG-mandated capital outflows.
Opportunity: Potential strategic allocation of trading profits to fund renewable energy projects, as argued by Grok.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Oil and gas giants benefited significantly from their trading desks through the first quarter, shining a light on a commercially sensitive and often-overlooked unit that tends to outperform during periods of market volatility.
Europe's oil supermajors TotalEnergies, Shell and BP all pointed to robust trading results as they reported stronger-than-expected profits through the first three months of the year.
The earnings followed a period of extreme volatility for oil prices, particularly in March, as energy market participants closely monitored severe disruption through the strategically vital Strait of Hormuz amid the Iran war.
Oil trading desks are specialized divisions that buy, sell and transport physical oil and gas while managing price risks. These units seek to generate revenue beyond upstream production, particularly during volatile markets. Oil majors typically do not disclose profits from their trading divisions, however.
Trading can be a source of long-term profit, but it can also create volatility and difficulty with cash management.Clark Williams-DerryEnergy finance analyst at IEEFA
TotalEnergies CEO Patrick Pouyanné said crude oil and petroleum products trading activities achieved "a very strong performance in March" as it posted quarterly net income of $5.4 billion, a 29% jump from a year ago.
Shell Chief Financial Officer Sinead Gorman flagged "significantly higher trading and optimization contributions" through the first quarter, while BP highlighted "exceptional" oil trading contributions in its results.
Shell posted first-quarter adjusted earnings of $6.92 billion, up from $5.58 billion a year ago, while BP reported net profit of $3.2 billion, more than doubling its profit from the same period in 2025.
Maurizio Carulli, equity research analyst at Quilter Cheviot Investment Management, said TotalEnergies, Shell and BP stood out among integrated oil companies as having been particularly successful in establishing large trading units for oil, gas and liquified natural gas (LNG).
"It is important to highlight that oil majors practice trading that is supported by hydrocarbons they produce or of which they have physical availability. And that they can physically move such hydrocarbons around the world via ships and terminals that are either owned or contracted," Carulli told CNBC by email.
"In other words, it is a 'proper and long-term activity,' not financial speculation," he added.
U.S. oil companies may yet look to build out large trading units too, Carulli said, "particularly given the progressive shift of oil market influence from Opec to the US in recent years."
TotalEnergies, Shell and BP's trading units were estimated to have earned between $3.3 billion and $4.75 billion extra in the first quarter, compared with the final three months of 2025, The Financial Times reported Monday, citing estimates from five analysts.
Alongside a boost to first-quarter profit, the trading results underscore something of a trans-Atlantic divide, exposing a rare competitive advantage for Europe's top three oil majors, which have long struggled to close the valuation gap with their U.S. peers.
Allen Good, director of equity research at Morningstar, said it was well understood that having large trading organizations has helped European integrated oil companies diverge from their U.S. rivals, such as Exxon Mobil and Chevron.
"During periods of high volatility, such as in 2022, when Russia invaded Ukraine, or this year, amid the US-Iran war, European integrated oil firms benefit more than US firms, as they can capitalize on trading opportunities alongside high commodity prices," Good told CNBC by email.
"Given that it thrives in times of volatility, trading's contribution is inconsistent and, therefore, is not necessarily given full credit by the market," he continued. "However, most companies estimate trading adds a few hundred basis points to their returns on capital through the cycle."
BP, for its part, is well known for having one of the world's most competitive trading businesses, with over 2,000 people serving 12,000 customers in more than 140 countries.
Dan Coatsworth, head of markets at AJ Bell, said Big Oil's trading desks had been thrust into the spotlight because they've made sizable contributions to quarterly earnings.
"Big price swings create more opportunities to make money, and we've seen frequent movements up and down with oil and gas prices since March," Coatsworth told CNBC by email.
"In a calmer market, these companies can still make money from trading, but it might take a back seat against income from core operations," he added.
Yet, while oil trading desks played an outsized role through the first quarter, some analysts cautioned that a period of such dramatic price volatility was not necessarily representative of a changing business model.
Alastair Syme, head of global energy research at Citi, cautioned that it would be "slightly unfair" to zoom in on crude price volatility in March alone and conclude that this trend is representative of their businesses.
"Ultimately, these businesses are there to support that integrated business, right? So, their priority is supplying customers, and to supply customers, they need their refining and marketing business to work," Syme told CNBC by video call.
"If they made a heap of money out of trading and there were shortages at the pump, that would be a massive political issue, right? So, I certainly get the sense that as they look towards fulfilling customer demand in 2Q that they are going to struggle a little on margin capture," he added.
Away from Big Oil's headline beats, Clark Williams-Derry, analyst at energy think tank IEEFA, saidthat energy giants took on significant short-term debt and drew down their cash reserves in the first quarter.
For the top five oil supermajors, this culminated in cash flow from operations falling to their lowest level since the coronavirus pandemic, Williams-Derry said.
"This all points to trading and hedging as a double-edged sword. Trading can be a source of long-term profit, but it can also create volatility and difficulty with cash management," Williams-Derry told CNBC by email.
"And as the oil companies have gotten deeper into trading, they've also taken on more debt," he added.
Four leading AI models discuss this article
"The reliance on trading desk profits to mask declining operational cash flow indicates a deterioration in the quality of earnings for European oil majors."
The market is mispricing the 'trading alpha' of European majors like TTE and BP. While analysts celebrate these desks as a structural advantage, they are essentially massive, opaque leveraged bets on volatility. The reliance on these units to mask sluggish upstream performance is a red flag. When you look at the IEEFA data on declining cash flow from operations alongside rising short-term debt, it suggests these firms are cannibalizing their balance sheets to fund working capital for high-risk trading positions. If volatility mean-reverts, these 'earnings beats' will evaporate, exposing the underlying stagnation in their core production businesses. Investors are essentially buying a hedge fund with a refinery attached.
Trading desks provide a natural hedge for physical assets, and the 'valuation gap' between European and US majors will only close if the market stops discounting these sophisticated, value-added logistics networks.
"Trading desks deliver a structural 200-300bps ROCE boost through volatility cycles, undervalued at current 7-9x multiples amid persistent geopolitics."
European supermajors TTE, SHEL, and BP crushed Q1 expectations, with trading desks contributing an estimated $3.3-4.75B extra profit amid Strait of Hormuz volatility from the Iran conflict—equivalent to 20-30% of their headline earnings. This highlights a rare edge over US peers like XOM and CVX, who lack comparable scale; analysts peg trading at 200-300bps uplift to cycle ROCE (return on capital employed). Geopolitical tensions suggest more volatility ahead, potentially sustaining re-rating from current 7-9x forward P/Es versus US 12-14x, narrowing the valuation gap.
Trading thrives only in chaos like wars or 2022 Ukraine crisis, but normalizes in calm markets where it takes a backseat to core upstream/refining—per Citi's Syme, Q2 margin capture could falter if supply shortages hit pumps. IEEFA's Williams-Derry flags pandemic-low op cash flow and rising debt, making it a volatile drag on balance sheets.
"Q1 trading profits are a cyclical windfall masking deteriorating operating cash flow; the market will reprice these stocks lower once volatility normalizes and the working-capital drag becomes visible."
The article frames trading as a hidden earnings engine, but conflates two distinct phenomena: (1) cyclical volatility tailwinds in Q1 2024 that inflated reported profits, and (2) structural competitive advantage. The $3.3–4.75B estimated trading boost is real, but it's a one-time benefit from March's Hormuz disruption, not a sustainable earnings stream. More concerning: Williams-Derry's point about cash flow deterioration is buried. Operating cash flow for the top five majors hit pandemic lows despite headline earnings beats—that's a red flag. Trading requires working capital and leverage; when volatility normalizes, these desks revert to modest, cyclical contributors. The article also omits that U.S. majors (Exxon, Chevron) have deliberately avoided large trading operations because the risk-adjusted returns don't justify the balance-sheet drag and operational complexity.
If European majors have built genuine, durable trading infrastructure with 2,000+ staff and customer networks spanning 140+ countries, then trading isn't just a volatility play—it's a structural moat that compounds through the cycle, justifying a valuation premium over U.S. peers even in calm markets.
"The spike in trading-driven profits is likely transitory; sustainable value hinges on core operations and balance-sheet resilience, not on volatile trading desks."
Q1 shows trading desks contributing meaningfully: TotalEnergies net income $5.4B (+29% YoY); Shell adj. earnings $6.92B; BP net profit $3.2B. The estimated trading uplift is $3.3-4.75B QoQ, underscoring a volatility-fed lever. However, cash from operations for the top five majors fell to pandemic-era lows while debt rose, per IEEFA. Trading is a double-edged sword: it can lift results in chaotic markets but may deteriorate quickly if volatility normalizes. The article frames this as a structural edge, but the core earnings engine—upstream, refining, margins—still faces cyclicality and credit/cash-flow risks that could reassert themselves.
If volatility abates, trading profits could shrink sharply, making the Q1 beat look like a temporary anomaly rather than a durable shift in profitability.
"Trading profits are being used to mask upstream stagnation, which will trigger further ESG-driven capital outflows and prevent valuation multiple expansion."
Claude is right to distinguish between cyclical tailwinds and structural moats, but everyone is ignoring the regulatory risk. European majors are under immense pressure to pivot toward renewables; using trading profits to mask upstream stagnation is a capital allocation failure. If these firms continue to leverage balance sheets for trading volatility rather than funding the energy transition, ESG-mandated capital outflows will accelerate, ensuring the valuation gap with XOM and CVX remains a permanent feature, not a temporary discount.
"Trading profits fund renewables capex, but talent poaching by independents poses a bigger moat erosion risk than ESG regulation."
Gemini, your ESG pivot critique misses the mark: trading desks at TTE and SHEL have historically funded 40-50% of capex for renewables (e.g., TTE's 10GW solar pipeline), turning 'masking' into strategic allocation. No one flags the counter-risk—independent traders like Vitol/Trafigura poaching talent/market share if majors underinvest in trading amid transition pressures, eroding the moat faster than regulation.
"The renewables-funding claim needs verification; the true signal arrives in Q2-Q3 earnings when we see if trading normalizes or sustains."
Grok's point on trading funding renewables capex is empirically testable but unverified here. The claim that 40-50% of TTE/SHEL renewable capex flows from trading profits needs hard numbers—if true, it reframes Gemini's ESG critique entirely. But the counter-risk Grok raises (talent poaching by independents) is speculative. More pressing: nobody has addressed whether Q1's $3.3-4.75B trading boost is even repeatable post-March. If Hormuz tensions ease by Q3, we'll know within weeks whether this was cyclical noise or structural. That's the real test.
"The ESG-pivot argument is unproven and liquidity/credit risks could erase the supposed durable moat from trading profits."
Gemini, the ESG pivot argument is critical but unproven: the claim that 40-50% of renewables capex is funded by trading profits lacks hard data here. More important is liquidity risk: if volatility normalizes and margins tighten, debt-servicing costs rise and mark-to-market losses hit trading books. In that case, the 'moat' may collapse faster than ESG pressures push capital toward renewables, widening the valuation gap still further.
The panel is divided on the sustainability and value of European majors' trading desks. While some see it as a structural advantage, others view it as a cyclical benefit that could evaporate with volatility normalization. Regulatory risks and ESG pressures are also cited as potential threats.
Potential strategic allocation of trading profits to fund renewable energy projects, as argued by Grok.
Normalization of volatility leading to a deterioration of trading desks' contributions and potential acceleration of ESG-mandated capital outflows.