One of the more unlikely victims from the recent wild swings in oil markets has emerged: a Norwegian pharmaceutical company better known for manufacturing diabetes drugs.
Vistin Pharma ASA, which is listed in Oslo and specialises in producing Metformin for type 2 diabetes, said on Tuesday it was shutting down an ill-fated oil trading venture it had launched last year in an effort to diversify its business.
The company, which may seem an unlikely candidate for oil trading despite Norway’s energy riches, said its “ambition” had been to develop a business that could cash in on changes affecting the oil industry, including new regulations designed to sharply curb the global shipping fleet’s use of high sulphur fuel.
But Vistin’s energy unit, which was run by Torbjorn Kjus and Kenneth Tveter, two oil specialists who previously worked for Norwegian bank DNB, was left nursing painful losses after the market moved against it during a period when the entire energy complex was whipsawed by wild moves.
Financial bets on the spread between diesel and shipping fuel, which are attracting increasing attention ahead of the so-called IMO 2020 regulations next year that will force the majority of shippers to use lower sulphur fuels, left Vistin Pharma, which has a market capitalisation of just $38m, with losses approaching $10m as of December 31, it said in a statement.
While the amounts are relatively small in the context of an industry where a single supertanker can carry a cargo valued far in excess of $100m, the blow-up nevertheless illustrates the extent of the recent price swings that have wrongfooted even some of the most storied energy investors.
Brent crude oil hit a four-year peak above $86 a barrel in early October but then suffered one of its sharpest quarterly falls on record, slipping briefly below $50 a barrel on December 26. Prices for refined products such as petrol, diesel and shipping fuel also moved violently.
Since then, oil has posted a mini-recovery, with Brent rallying almost 18 per cent — an impressive gain in less than two weeks but still only taking prices back to near $58 a barrel.
Vistin Pharma, which first announced problems in its energy business on January 4, a day after Mr Kjus resigned, said on Tuesday that “to establish a sustainable business unit based on energy trading has proved to be demanding”.
It added that “the international energy markets have been challenging and the trading positions taken by the company has so far not performed as planned”.
It said while it was closing its energy business it continued to hold contracts exposed to the price difference between 150,000 metric tonnes of ICE low sulphur gasoil and Sing 380, a shipping fuel contract, which expire on December 31 2020.
Oil’s swings have come as traders have reassessed the pace of US shale growth, which is contributing to signs of an oversupplied market, while weighing fears of a broader slowdown.
Some traders still see opportunities in oil, however, not least around IMO 2020.
London-based Enerjen Capital has launched a $1bn fundraising this week for an investment vehicle that aims to hedge against a potential fuel price spike caused by the introduction of the regulations.
