Goldman Sachs booked revenues of more than US$1 billion in its commodities division for the first five months of 2020—the investment bank’s best start to a year in commodities in a decade, mostly thanks to oil trades, Bloomberg News reported on Wednesday, citing people familiar with the matter.
Goldman Sachs was one of the most active banks in commodities before the 2008 financial crisis, but it has since shrunk its commodities division because of lackluster profits, higher costs, and stricter regulation regarding investment banks entering trades.
Last year, Goldman Sachs was said to have further downsized its commodities division as revenues and profits were shrinking and competition from oil trading houses and oil majors rose.
This year, however, Goldman’s commodities division reaped the benefits of bets on an oil price decline after the price of oil collapsed in March and April due to the crashing demand and shrinking storage capacity around the world.
According to Bloomberg’s unnamed sources, most of Goldman’s US$1-billion-plus revenues in commodities came from the oil trading division overseen by Anthony Dewell based in London and Singapore-based Qin Xiao, who had correctly predicted and bet on the collapse in oil prices.
The high volatility and interest on oil bets and trading have generally benefited the Wall Street traders and banks this year.
In the first quarter of 2020, Goldman Sachs reported net revenues of US$2.97 billion in its Fixed Income, Currency and Commodities (FICC) division—the highest quarterly performance in five years, reflecting strong client activity in both intermediation and financing, the investment bank’s Q1 earnings results show.
In its latest note to clients, Goldman Sachs said on Monday that the relief rally in oil may be coming to an end as oil market fundamentals are turning bearish once again and pointing to Brent Crude slipping back to $35 in the short term, because of still uncertain demand recovery and returning production from the U.S. and Libya.