Best product to trade
What's the best product to trade out of the following - LNG, crude oil, light distillate, middle distillate?
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crude oil...good volatility...with good liquidity (relative to the others)
If you're about to start or just started your career -> LNG / NG, maybe LPG. Personal opinion is you'll be a dinosaur (think coal guys today) in any of the others right smack dab in the middle of your career - that wouldn't be fun.
Disclosure: work in LNG
Agreed.
LNG is a fungible product, which to me is very boring. At the end of the day, you just compete for the lowest cost, rather than anything creative with quality, structure, logistics and geopolitics.
I'll bite - this an interesting discussion that can be debated.
On quality - no comment, you're right there is nothing to be had here. No grades, types, etc. and any differing quality specifications in LNG get normalized during invoicing as required.
Structure. LNG today (in its absolute infancy) trades across countless pricing mechanisms and formats - I've seen everything from vanilla Brent or HH link, to multi commodity linked formulas involving urea pricing or other products that feed into commodity processes. Assuming LNG gets priced at liquefaction economics and call it a day is naive and 2011-esque
Logistics. I'm curious, what differs in crude oil logistics versus LNG - I'm not in crude or know too much about it, so I'd be interested in hearing more.
Geopolitics. Anything that could geopolitically affect global crude oil benchmarks could do the same exact thing in the global NG trade. Russian pipeline flows affect European LNG. Tariffs between Mexico / Canada affect HH and in turn gulf coast FOB LNG. Etc. Plenty of equivalent examples that drive huge swings in indices used in LNG pricing structures.
Crude Oil. Demand is immobile, supply changes, its all logistics and trading around that. Even if demand starts to decline, we will need smart oil traders for your entire career.
crude, light, mid, lng
Assuming your ranking is in descending order, I would love to know why your view on LNG is so diametrically opposed to @EnergyHOU; there's a lot of hype right now around NG/LNG, I would love to hear the bear case from an industry vet.
there has been HYPE since 2010... LNG will come into play in a major way - but when?
i am 36 and LNG was the new new thing when i was coming out of school - still not a game changer
What about for non-commodities? What product ( credit, rates, equities, mortgages) has the best outlook?
Non-commodities - anything that trades in relatively illiquid, brokered markets for job safety + room for alpha
Above commods - LPG. Markets in the US are very fragmented due to regulation, which leads to volatility and more opportunity to make a name for yourself on a desk. When I was on a commods floor the LPG/light end guys always looked like they were having the most fun
they still are
Crude is king. You’ll make the most money as a crude trader if you’re good cause the dollar size of all the deals is much bigger. Caveat - if you work for a oil major as a crude trader, unless it’s BP, most of what you’ll be doing is supply trading. Which is either A) Get rid of the barrel or B) Find me this exact barrel. With given price targets. So not as fun. But still lucrative.
Middle distillates is Fungible - with some room for optimization but there is global arbitrage opportunities so that makes it a bit more fun than crude, less direction around how to trade it from the helicopter parent company.
Light Distillates are dogs, in today’s market no one wants Naphtha or Gasoline so it’s a wave of people trying to optimize it. Low margins means unless you’re at a trade shop (Vito’s/Trafi/Gunvor/Freepoint) - you’ll have the smallest book in the company. Which means smaller bonuses.
LNG/LPG/NGL - very interesting. In today’s world it’s all about building natural gas infrastructure and signing long term deals. You’ve got fractured markets and it’s really very “corporate” right now. So the guys who win are the guys with weak transfer prices and the best new docks/fracs etc. very much in its infancy and not really sure where it wants to go. If you live in Houston - this is where you’ll find all the job openings. Otherwise you’re very limited on where you can work.
Great post. How do you feel about light distillates long term (5-10yrs)? Do you think the growing commercial aviation sector in Asia will lead to global structural supply shortages for naptha/jet fuel?
just a heads up - jet is a middle distillate.
Power, and more power.
what's fun about trading power? have heard lotta good things
Guy at my firm runs the desk by himself and I believe PnL is in the millions every year. He also works less hours than I do and has to talk to less people...so I think he may be onto something...
Work 6-3, (after a while doing shift work) will always be needed no matter the fuel source. More renewable generation adds more vol, meaning more margin. No two days alike, wind/load/cloud coverage/outages etc all change seasonally and daily. Great time to be in power.
I'm in proprietary power trading. The lack of demand elasticity gives some interesting price distributions: good for trading. There are also lots of opportunities to run different strategies: cross-commodity (most markets have both coal and gas installed capacity), locational strategies for interconnected markets (you don't need to own capacity for this), pure power fundamentals via fuel spreads (power price - fuel cost - carbon cost).
The volume of data (half hourly settlement in my market) also gives you plenty of opportunity to work on new analysis!
Crude oil is most common and has high volatility. This is also a commodity you can easily find in many online trading platforms. Trading this commodity is profitable if you pay close attention to the movers and shakers of the market.
Not Equities at DB.
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