- Goldman Sachs’ commodities traders are hot off their best start in a decade after making $1 billion in the year-to-date, Bloomberg reported Wednesday.
- Much of the traders’ gains came in April when oil prices plummeted below zero and forced outsized selling of the commodity and related assets.
- Partners Anthony Dewell and Qin Xiao prepared their desks for such a decline. When West Texas Intermediate crude futures slid to negative prices on April 20, their short bets won out.
- The year-to-date revenues mark a return to form for Goldman’s commodities business. The segment lagged in recent years as strict post-crisis regulation hindered the traders.
- Watch oil trade live here.
Most of the desk’s gains through May come from oil traders who successfully called the market’s collapse in April. West Texas Intermediate crude futures plummeted to negative levels on April 20 as contracts neared expiration and oil supply threatened to outweigh storage. The decline slammed the stock market and created a lasting drag on energy stocks. Yet Goldman’s oil experts positioned for the fall and its lasting damage throughout the financial sector, sources told Bloomberg.
The desk’s year-to-date gains mark a sharp reversal from recent years. When David Solomon took the helm in late 2018, he was displeased with the business and its lackluster performance. Stricter regulation of trading desks after 2008 also hindered commodities traders by eliminating proprietary-trading teams. Commodities traders who were used to taking in $3 billion in annual revenue roughly a decade ago struggled to maintain such performance.
Solomon came close to closing the segment, Bloomberg reported, but opposition from traders resulted in smaller cuts and renewed support for the desk.
The massively profitable oil trades were orchestrated by Anthony Dewell and Qin Xiao, according to Bloomberg. The two instructed their desks to prepare for April’s oil-price chaos, Bloomberg reported. Xiao correctly called the commodity’s dive in the first quarter, when the coronavirus’ initial outbreak in China halted factory activity and, in turn, energy demand.
When the two noticed a convergence of weakened demand and growing storage stresses, they bolstered their short positions. Oil prices nosedived through April, forcing institutional and retail investors alike to flee the market. The overwhelming selling spree fueled Dewell and Xiao’s outsized gains.
Now read more markets coverage from Markets Insider and Business Insider: