The bank has been aggressively hiring top oil traders, including a team from Enron, and is now set to beat the American investment banks Morgan Stanley and Goldman Sachs in the lucrative London market. Globally, Barclays expects to be the third-biggest player.
The success marks another coup for Bob Diamond, the colourful head of Barclays’ investment-banking division nicknamed “the coach”, who has managed to make large profits in lacklustre markets by diversifying into new areas. Experts expect Barclays to make a profit of more than £250m from oil trading this year.
The commodities division is headed by Benoit de Vitry. He has been recruiting between 20 and 25 people annually to its energy-trading division for the past few years. Thirteen people are now dedicated to oil trading.
A senior commodities executive said: “We now have one of the biggest teams in Europe and will be No1 or No 2 in oil trading in London this year. At present, we are pretty equal with Morgan Stanley and Goldman.”
Barclays’ increased interest in oil is being reflected throughout the City as banks and hedge funds rush into the market. ABN Amro and Rothschild have also been building up specialist oil-trading units, and Merrill Lynch is understood to be planning to set up a big team.
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Previously, the market was dominated by long-established commodity trading houses, with only Goldman Sachs and Morgan Stanley having a large long-term presence among the banks.
Oil traders are now among the most sought-after staff in the Square Mile and they command huge salaries and bonuses.
One commodities executive said: “I have never known such a strong market for oil traders. If you can spell ‘derivative’ you can earn six figures, and anyone half-decent is now getting a $1m signing-on bonus.”
The bulk of the banks’ oil-trading business is thought to be complicated hedging products sold to airlines, oil companies and others hit by high oil prices. However, there has also been a sharp rise in speculation on oil prices by banks’ proprietary traders and hedge funds.
Experts estimate that speculation adds about $7 or $8 to the price of a barrel of oil — which now represents about 15% to 20% of the value. The price of crude oil closed the week at $43.18 per barrel in New York, down from close to $50 earlier.
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The activities of speculators have been criticised by the American and French governments, which say that they are driving oil prices to unrealistic levels, and therefore exaggerating fears that oil supplies could be disrupted because of the war or terrorism.
Airlines are also imposing special charges on travellers to cover higher fuel costs.