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Oversupply and low volatility in oil market dampen profit margins for Trafigura

OVERSUPPLY and relatively low volatility in the oil market reduced margins and arbitrage trading opportunities for Trafigura Group.

Net profit for the firm, one of the largest independent oil traders in the world, fell 9 per cent to US$887 million, in spite of revenue jumping by 39 per cent to US$136.4 billion on increased volumes and higher commodity prices.

Gross profit margin slipped from 2.3 per cent in 2016 to 1.6 per cent this year.

Both its oil and petroleum as well as metals and minerals trading divisions handled increased volumes. In particular, volumes of crude oil and oil products traded into and out of India over the year doubled as the group invested into Indian refining and distribution firm Essar Oil.

But while metals and minerals recorded an exceptionally strong year across the board, from non-ferrous concentrates to refined metals and bulk minerals, profit in oil and petroleum products was lower due to reduced market volatility, said the firm.

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"In commodity markets that are more competitive and transparent than ever, these results demonstrate the benefits of our scale, our resilient and diversified business model, as well as our ability to generate profit consistently throughout the economic cycle," said its chief executive officer, Jeremy Weir.

Its chief financial officer, Christophe Salmon, views the oil and metals markets positively for 2018, supported by increasing demand, tightening supply and the potential for greater price volatility.

"As such we believe the need for the marketing, logistics and risk management services we provide can only grow in the coming year," he said in a statement.

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