BP considering shakeup of trading division to counter declining profitability

By Jane Wardell, AP
Friday, October 8, 2010

BP trading unit review eyes emerging markets

LONDON — BP PLC is considering a shake-up of its trading division to focus on emerging markets after a decline in profitability due to a tougher market environment.

BP spokesman Robert Wine said Friday that an overhaul could lead to job losses among the division’s 3,500 staff around the world, but no final decisions had yet been made.

BP’s integrated supply and trading division is the world’s largest oil trader. The unit decides how much oil and gas should be sent on to refineries for production to meet market demand. It purchases crude oil and unrefined gas from other companies if necessary to meet customer needs and likewise sells large quantities of the same to others.

Lower volatility in oil prices this year has led to a deterioration in refining profit margins — oil prices have traded between $70 and $85 a barrel over the past 12 months.

“We are facing a low margin environment in trading,” Wine said. “We need to be more efficient and reduce costs.”

Wine said a review of the supply and trading division will be carried out over the next few weeks.

The unit’s staff are mainly based in London, Houston, Chicago, Singapore and Calgary.

In an e-mail to staff, Paul Reed, the head of the division, cited factors including spare capacity by the Organization of Petroleum Exporting Countries and the refining industry and a surfeit of gas for low price volatility.

Reed suggested that a decline in the division’s traditional business could be countered by growth in China and India and in supply basins in West Africa and Brazil.

BP does not report results from its trading arm separately — they feed into its refining, marketing and exploration and production division — but analysts view the division as a strong contributor to profits.

Shares in London-based BP were trading 1 percent lower at 432.55 pence ($6.86) in afternoon trade on the London Stock Exchange.

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