Crude Oil, Refined Products, Natural Gas, LNG, Electric Power

February 24, 2025

Global commodity trading margins set to rebound after 2024 slump: McKinsey

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HIGHLIGHTS

Oil trading profits slumped by 40% in 2024 as markets settle

Power and gas trading to overtake oil as largest value pool by 2030

Energy trading value pools forecast to hit $115 billion by decade-end

Global commodity trading margins are projected to grow steadily through 2030 despite a sharp decline in 2024, with power and gas markets poised to overtake oil as the largest trading value pool by the end of the decade, according to new research from McKinsey.

Trading profits across major commodities fell by more than 30% in 2024 compared to record levels seen in 2023, with oil and power markets experiencing the steepest declines of around 40%, while LNG trading showed more resilience with a 23% drop, the report concludes.

"After a period of exceptional profits, commodity trading markets are starting to normalize, causing industry-wide margins to stagnate or even recede," the report noted, adding that 2024 earnings indicate total industry value pools decreased by more than 30% year over year.

The oil and products sector saw profitability continue its decline from record-breaking highs in 2022, when margins more than doubled historical averages. Asset-backed traders in refining faced particular challenges in 2024 due to increased global refining capacity and weak product demand in OECD nations.

Trafigura, one of the world's leading commodity trading firms, in November, reported a slump in net profits in the year to Sept. 30 reflecting a return to more normalized market conditions. Supply chain disruptions from Western sanctions against Russia helped more than double Trafigura's earnings to record highs of $7.3 billion a year earlier.

However, the long-term outlook remains positive, with McKinsey projecting trading value pools could reach $115 billion in EBIT by 2030, implying approximately $200 billion in gross margin. This growth will largely be driven by power, gas and LNG markets rather than traditional oil trading, according to the report.

The report concludes that power and gas trading, including LNG, is poised to become the largest value pool by 2030. The shift could potentially accelerate as power demand grows and more markets, such as Japan, Brazil, and China, liberalize and become tradable.

"The growing liberalization of power markets, increasing energy volatility from widespread adoption of renewables, and the need to optimize flex assets and demand will likely drive much of the expected growth," according to the analysis.

LNG market

In the LNG market, while 2024 saw sustained tightness and geographic arbitrage opportunities, an inflection point looms as additional US liquefaction capacity comes online. Futures markets now indicate LNG prices could drop by as much as 30% by late 2026 or early 2027, later than original expectations of 2025, the report notes.

The European gas market has undergone structural changes, becoming more dependent on imported LNG as Russian pipeline supplies declined and domestic production fell. The mandatory security of supply requirements for winter gas storage have reduced seasonal price spreads and trading opportunities, the report notes.

In September 2024, the summer 2025 contract of the Dutch TTF was hovering at a discount of around Eur1/MWh to the winter 2025 contract, Platts data shows. A year earlier, over the summer season of 2023, the Summer 2024 TTF instrument was valued Eur3.16/MWh below its winter 2024 counterpart on average.

Power markets face increasing complexity due to renewables integration and the rise of flexible assets like batteries. Short-term volatility is growing as markets become more weather-dependent and granular, with additional trading zones and more frequent transactions.

"Looking ahead, the increasing uncertainty about demand development, alongside renewables penetration and regulatory uncertainties, could drive volatility and risk premiums," the report stated.

The research highlights how leading traders are expanding operations across commodities, markets and geographies, profiting from a more sophisticated understanding of interconnected markets. Their ability to process large volumes of data and leverage AI models is becoming crucial for success, it notes.