Geneva: Wall Street of Oil

Geneva is home to so many oil traders. Forget about Houston or New York, Geneva oil industry counts more than 8,000 employees and the trend is not going to reverse. As for today more and more traders and oil professional are deciding to the Swiss city.

They all started in the 90s and their names are Torbjörn Törnqvist, Gennady Timchenko, Daniel Jaeggi, Marco Dunand or Daniel Fransen  and their trading companies are Totsa, Vitol, Gunvor, Litasco, Addax or Mercuria: operating beyond the realm of the majors Exxon, Shell, BP and Total.

A trader will sell the oil from its major to a buyer in Singapore through a broker. An oil tanker will load from Estonia and bring it to Indonesia within 18 days. There, an inspector from SGS, the Geneva inspection company, will measure the density, viscosity and water and sulphur contents of the goods. The selling price will be the one observed on the unloading date with a premium of ten dollars per metric ton with immediate payment.

Theoretically, the world of oil trading is a two-tier universe. Here, in Geneva, you have the dealers who direct the oil tankers across the seas and buy and sell the physical commodity. And there, at the NYMEX, the New York commodities exchange, you have the speculators who use futures contracts to bet on future oil prices. A paper market.
Since a payment of the whole oil export is due on date of unloading, the trader has to hedge himself against price fluctuation, political unstability of the country, solvency and liquidity of its final clients, credit contract with his bank for the 18 days delivery and of course currency fluctuations.


Why is Geneva attracting the whole oil industry?
First reason the low tax rate. Second reason the proximity with other companies in the same business.  SGS, the world’s largest inspection company with 40,000 employees, is based in Geneva and is an essential provider of services to the industry; and Mediterranean Shipping Company, MSC, has its headquarters in Geneva and is one of the largest shipping companies in the world with a fleet of 363 tankers. Others say that, as host to numerous international organizations, and with a 44% share of foreigners in its population, the cosmopolitan city is well-equipped in multilingual schools and kindergartens.Transocean, the world’s largest offshore exploration company, which on 19 December announced that it was relocating. 22,000 employees in offices all over the world will henceforth be managed from Geneva. A day later, Texas energy giant Weatherford announced its plans to move its group headquarters to Geneva. And Noble Corp., the number two offshore drilling company, is also thinking of establishing headquarters in Geneva. Group CEO David Williams explains what attracts him: “The stable business and financial environment, and the time-tested tax rules”.

Oil trading needs trade financing.

In the whole process of trading, the traders needs a good bank to provide him with good credit facilities. For 18 days a tanker is worth about 200 mio dollars. As not all oil is the same and then not totally 100 pct correlaed to the WTI futures, the slightest 1pct uncorelation with the futures can make a loss of 2 mio dollars easily. Trade financing is then a big topic for oil trading companies.

Oil trading alone generates CHF 360 million per year in taxes for Switzerland. Therefore this blog will try to explain all the specificities of this huge business.