Get into energy trading now? job prospects, salary, etc.

Hey all, I was wondering what your opinions were about getting into energy trading now? I have an opportunity to work for an established hedge fund (>$20bn) in their energy trading desk right out of undergrad and am strongly considering it.

Still, I have the impression that the energy market in particular is so volatile, esp. in nat. gas and power, that the returns can be fantastic... or they can ridiculously bad. Amaranth is an obvious example, however cliche. What happens one year in, the desk loses millions and is fired? Is that feasible?

The hedge fund element is also something that I'm curious about. All my friends are heading to banks and though I have no interest in the "corporate culture" per se, I do wonder if starting out as a market-maker before going to the buy-side is really as important skill-wise as some say.

Last question, with less job security should come greater pay to compensate for the risk right? How much is the typical salary/bonus of newbie energy trader? Is it worth it?

Any comments or thoughts would be much appreciated.

 

I would say it depends on how risk averse you are? If you feel like at an earlier age its better to take some risks, then energy trading just might be a new, exciting discipline thats becoming almost like its own asset-class. However, trading energy is still very volatile, so it depends on you. You may just become the next all-star trader and network your way into better and bigger jobs later on, but you could also become the next Brian Hunter..

 

Must either be Goldman, Bridgewater or DE Shaw. Honestly, working at either of these three shops won't disadvantage you in the long run. Fact of the matter is, energies are themselves volatile commodities. Natgas in particular is just absolutely crazy at times. However, that's not something that should scare you away. Remember that LTCM went broke trading government bonds, which are some of the least volatile instruments to trade. Risk is determined not only by the volatility of the traded instrument, but the position sizes as well.

One thing to consider here is exactly what the job will be. As far as hedge fund trading goes, the exact role will really depend on what kind of shop it is. For example, it may be that at Bridgewater, you're directly involved in making investment decisions and in time, you'll have your own P&L. It may be that at DE Shaw, you'll just be executing trades that a computer spits out, which is perhaps a less attractive job. Make sure this particular job allows you to make intellectual contributions that affect P&L.

If you'd like to discuss further, feel free to send me a PM.

 

I think that no one should worry about taking a job at a >2bn fund over an investment bank. Especially when you get into the 10s of billions, its practically the same thing 'job security' wise. and the only reason commodities are 'perceived' as so risky is because they are volatile - but most investors are looking for the returns anyways - so typically they dont get scared away by down years as anyone intelligent would come to expect that.

ivyleaguer i started out on the buyside out of school and i can give you some color on salary/bonus potential but it basically tracks investment banking / sales and trading people for the most part. feel free to pm.

 

I think that no one should worry about taking a job at a >2bn fund over an investment bank. Especially when you get into the 10s of billions, its practically the same thing 'job security' wise. and the only reason commodities are 'perceived' as so risky is because they are volatile - but most investors are looking for the returns anyways - so typically they dont get scared away by down years as anyone intelligent would come to expect that.

ivyleaguer i started out on the buyside out of school and i can give you some color on salary/bonus potential but it basically tracks investment banking / sales and trading people for the most part. feel free to pm.

 

I'm gunna take a bet and say you are at DE Shaw. Take the job by ALL means.

Even though there's tons of volatility, a fund like DE Shaw won't gamble like amaranth did.

"What happens one year in, the desk loses millions and is fired? Is that feasible"

This is very feasible. Given that you are straight out of undergrad, you will probably have the most job security.

Will you start out as a trader? You're most likely be an "analyst." Your salary will prob track IB and if your desk does well, you'll prob match your salary or even 150%.

Although I'm not too familiar with large hedge fund bonuses, most smaller hedge funds, banks, and energy companies use a 10% of P&L type bonus calculation.

 

So...after reading a few articles, I now know most of the major BB's and many MM's have trading desks.

Are they in NY / Houston / ??

Are these quant. based or macro based? Obviously, derivatives will be quant. - so to what extent are they used?

Again, input would be greatly appreciated.

Good night, +Hammy

 
Best Response
theHam1:
Who are the big players in energy trading?

What BB banks have the best energy trading desks?

Where (geographically) are these desks? Anywhere besides Houston...? - Although Houston is NOT a problem.

Do energy trading desks take undergrads FT or for the summer?

Any additional information that you could communicate would be greatly appreciated.

Thanks in advance, +Hammy

BP's Integrated Supply and Trading is the largest commodities trader in the world. They do more trading volume than the two runner-ups combined (I want to say it's Morgan Stanley and Merrill Lynch, but GS may be in there, too.) They account for roughly 25% of the open interest on the NYMEX, and I'm guessing the number is similar for the ICE.

BP's traders are compensated similarly to guys in S&T at I-Banks. Their headquarters is in a Chicago suburb, but they have offices in Texas and California. The deal with energy trading is that if you work as a trader at an oil company, it's very easy to get hired at an I-Bank or hedge fund.

Saying you're from BP's IST is sorta like saying that you studied Comp. Sci. at Cal Berkeley. A lot of people will say, "Oh. That's one of the nicer Fortune 500 companies." People in the business of trading oil, however, will know that the traders you work with make the traders at most I-banks look like dunces. Last year, the group accounted for roughly $2 Billion of BP's profits.

They do offer summer internships, but it may be too late for this summer.

When I interviewed there, I got the impression that BP had this nice, low-key atmosphere for a trading division. These guys were making money, and were good professionals, but they didn't seem all that intense like most Wall St. traders.

 

BP came to our school and did a trading simulation. The guys were really chill and one of the guys was like keifer sutherland in every way. the guy giving us the schpiel kept making references to getting drunk. it was a great time.

that said, i've heard BP has had their reputation damaged from insider trading scandals because of trading on news that only the company would know since it operates a shitton of oil rigs in the gulf coast. for that reason, if they think you're gonna be a knucklehead i.e. do insider trading, they probably won't hire you. one of the kids I met at the simulation was going to be working for BP's IST during the summer and he did not seem to be anything special other than he was a pretty chill guy. Wasn't a trading genius or anything like that.

 
Jimbo:
i don't think theres an issue with bp trading on their own info.

lots of energy desks are in nyc

Yeah. Commodities are under the jurisdiction of the CFTC. The oil companies can legally engage in all of the insider trading that they want. If they know a refinery is about to go offline, they can go long the crack spread before the rest of the market finds out. It's really quite evil. I'm not sure if BP has internal policies to prevent this, though.

NYC has lots of energy desks, but again, if you're looking for a firm that specializes in energy, BP in Chicago accounts for roughly 25-30% of the open interest at NYMEX. They had about as much office space and as many traders devoted to energy trading as many BBs have devoted to trading in general at their New York offices.

Exxon, Shell, and Conoco also do their own trading, but you generally have to be an oilfield engineer or something like that for a few years before getting into trading. It's also less proprietary than at BP.

 

Banks tends to focus on energy derivatives and structuring, more so than just clearing futures trades. Bloomberg posted an article last week with some good analysis done by a consulting firm on the top banks in energy derivates. Basically, Goldman is first, Morgan Stanley second, then Barclays Capital. Then after a big gap you have Deutsche, JPM, and Merrill, though the other banks are aggresively trying to build. I believe Citi is the only bank whose US commodities operations are primarily in Houston, although Merrill's might be as well. Goldman, Barcap, and Morgan Stanley are all in New York (well, NY suburbs for Morgan Stanley). Also, I'm not so sure BP pays as much as the Street. We have a lot of ex-BP guys on my desk....

 
skins1:
Banks tends to focus on energy derivatives and structuring, more so than just clearing futures trades.
When I visited, I got to see BP's proprietary oil trading desks, and they do it all. They naturally worked with derivatives on exchange-traded stuff, but also traded options on some of the weirder grades of oil with the refineries. There was extensive math involved, and a decent amount of money to be made or lost in these trades.

Some of the focus is a bit more on managing supply and delivery stuff. If you don't wind up at a trading desk, you may be in supply (The money is still very good there), and asked to help manage delivery of 500k barrels of oil to a Chevron refinery in California and get it there by a certain date.

All of it's interesting stuff that involves plenty of analytical skills.

Also, I'm not so sure BP pays as much as the Street. We have a lot of ex-BP guys on my desk....
I was under the impression that the pay was much closer to the street than it was for a typical job at an oil company, if not as good as or better. They said they competed against both the Chicago trading firms (which pay more than NYC) and the I-Banks for new hires. However, it's also my understanding that the exit opps at BP are much stronger than they'd be at an I-Bank, so that may be the reason they can compete.
 

I may be wrong on the BP pay issue. We just have a number of former BP guys on my desk, most of whom don't seem to like NYC that much, so I'm guessing they must have received some nice packages to move here. That's one of the funny things about commodities desks, is the fact that so many people the banks are trying to hire away from energy companies require a premium to move to New York. Versus many standard Ibanking people who would require a huge premium to move to Houston....

 

bp has some FUCKING AWFUL bonuses. like 10-15% of base. around 20 top traders quit his year because of their shitty salary, and reports semm to indicate that resignations were really common around this time of the year.

but yeah, big oil companies like bp, shell, statoil frequently train the best traders in the field. Olav Refvik, a top oil trader with Morgan Stanley, was at statoil for something like twenty years beforehand

 

energy trading jobs are very competitive, partly because of the upside potential and partly because of the smaller size of the business. energy is still not very regulated, and many who are supposed to trade order flow take proprietary positions. also, compared to equities and fixed income, energy trading is a much smaller-sized business and has less opportunities for entry. as for location, the three hubs are NYC, Stamford and Houston. most of the funds and several banks are located in the Northeast, with other banks, funds, and major physical groups being down in Houston.

entry level positions are hard to come by, there are two ways that I would suggest people go with it. either try to get into an analyst pool at a bank (if you're still in college apply, if you're working consider a master's at a good school) where you may have a shot at working on the commodities trading desk, or start from an operational role (scheduler, etc.) at a physical trading firm where you're responsible for such ground level activities as making sure the gas flows from one point to another, etc. many of these physical energy firms like to hire within, and many of the traders there started in operations, so you have a better shot that way.

 
antuskarana:
energy trading jobs are very competitive, partly because of the upside potential and partly because of the smaller size of the business. energy is still not very regulated, and many who are supposed to trade order flow take proprietary positions. also, compared to equities and fixed income, energy trading is a much smaller-sized business and has less opportunities for entry. as for location, the three hubs are NYC, Stamford and Houston. most of the funds and several banks are located in the Northeast, with other banks, funds, and major physical groups being down in Houston.

entry level positions are hard to come by, there are two ways that I would suggest people go with it. either try to get into an analyst pool at a bank (if you're still in college apply, if you're working consider a master's at a good school) where you may have a shot at working on the commodities trading desk, or start from an operational role (scheduler, etc.) at a physical trading firm where you're responsible for such ground level activities as making sure the gas flows from one point to another, etc. many of these physical energy firms like to hire within, and many of the traders there started in operations, so you have a better shot that way.

agree to all expect second part..all jobs in energy are tough to get... i know we have tons of people applying to back office jobs.. its tough all the way around

 

Not sure if it's been noted above or not but engineering is a rather popular degree to have among traders. I know the guy that got me into the BB I'll soon be at is the ED of an area of commodities trading for the bank and he started out in a small shop before making several switches to eventually building upthe commodities division at this particular bank.

 
brooksbrotha:
Not sure if it's been noted above or not but engineering is a rather popular degree to have among traders. I know the guy that got me into the BB I'll soon be at is the ED of an area of commodities trading for the bank and he started out in a small shop before making several switches to eventually building upthe commodities division at this particular bank.

selling this... you will have less then 5% of floor with eng degrees

 
monty09:
i was once offered a job in emissions and turned it down
. Just out of pure curiosity, May I ask why?
Valor is of no service, chance rules all, and the bravest often fall by the hands of cowards. - Tacitus Dr. Nick Riviera: Hey, don't worry. You don't have to make up stories here. Save that for court!
 

If your very competitive and go to a BIG Ten or Ivy school, look into Shell and BP energy trading. They recruit at those schools.

I made it to final round for Shell Energy in Houston, and it seems its extremely competitive to get a job with them in general, trading being extremely hard to get and very desirable amongst EVERYBODY at the superday.

If you get hired at some places, they expect operational work, then you will need to reapply internally with other co-workers to re-battle for positions in the Trading division. If you work for a big Petroleum company in trading, expect to love your job and be very financially comfortable.

I know that Minnesota has some top notch renewable energy research labs, maybe look at the recruiting list for U of Minn, and maybe some of the companies have energy trading.

Btw, just cause its trading, they are going to expect you know a lot, A LOT, of shit about all the industries, internationally as well, and how you fit in the industry, then why you would fit the job (specifically for big petroleum companies). Energy trading companies also admire if their traders were once top notch athletes, because being an athlete requires explosive decisions, just like trading.

.
 

Id be interested also in the answer to this question. Also, Renewable like energy trading or renewable like emissions trading?

Valor is of no service, chance rules all, and the bravest often fall by the hands of cowards. - Tacitus Dr. Nick Riviera: Hey, don't worry. You don't have to make up stories here. Save that for court!
 

I used to work on an oil and gas desk at a clearing house at the Merck. A lot of traders work for themselves. Other work for proprietary desks that the clearing houses clearing houses set up like the one I was on. Then there are some big trading companies like El Paso; a lot are in houston I think. The Merck and ICE just went electronic so it's getting a lot easier for people to get in.

 

To clarify even more, Energy Banking would involve mergers and acquisitions in the energy industry, as well as restructuring and financing energy industry corporations.

Energy Trading would involve the sales and trading of energy industry financial instruments, like derivatives, futures (with crack spreads), etc.

Houston is kind of the center of energy banking and trading in the US, for obvious reasons.

 

You should have posted this under trading lol.

Whatever BBs thats leftover (GS, Citi, Barclays, CS), Supermajors(Shell,BP,Total etc), and trading houses (Trafi,vitol,mercuria,glencore etc). Depends on what you wanna trade, some people start off at utility companies as well. There are a lot of other companies out there as well (RWE trading, EDF) more for gas and power.

 
 

I assume you are looking for gigs in the south?

Kinda hard to straight up apply with the low 3 GPA. There aren't really any companies that fit the profile you are looking for in energy/commodities trading. Most of these are large companies with dedicated recruiting for ft and internships. Best bet could be to look into: brokerage shops, retail providers(just energy, direct energy) Utilities would also be a great avenue( NRG, Nextera, Westar, EDF, Duke)

 

Realistically depending on how bad you want to break in to the energy trading space I would look at a master's degree at a place like Tulane or Rice. Tulane has a Masters in Energy Management that has quite the alumni network and Rice has a relatively new program called the Masters in Energy Economics. Both would give you a brand name on your resume, a chance to revamp your GPA, and access to recruiting.

Tulane is more trading/business focused and the Rice one is more, as the name suggests, econ focused. Tulane has more history and a more extensive alumni network but Rice has the best name you can get in the Houston area. Both have their pros and cons.

The only reason I suggest more school is because pretty much any large commodity shop has extensive recruiting just like you find at a big bank and will be looking for experience in the space or a very good school/gpa on the resume.

Another possible route would be applying to midstream companies in some type of market analysis or operations role. I can't post links due to how new my account is but google AMLP portfolio and click the first link that isn't an ad and you will find an extensive list of midstream companies.

 

Et aut totam molestiae veritatis qui qui voluptas. Debitis ullam eum delectus. Qui sequi distinctio dignissimos maiores ab dolorum in.

Voluptas perspiciatis sed est libero. Doloremque unde consequatur voluptatem qui velit error.

26 Broadway where's your sense of humor?
 

Aspernatur rerum placeat repellat laborum eaque. Dignissimos maiores corrupti ipsam cupiditate tempore in veritatis. Quos fugiat molestiae minima voluptatem fugiat. Et enim dolor ut tempora nobis iste voluptatibus. Omnis commodi magnam id voluptatibus quaerat pariatur quaerat.

Voluptatibus enim nisi rerum temporibus sit libero. Magnam sunt id quis omnis et.

Aut quibusdam iste nobis ea id. Voluptatibus aut voluptatem occaecati accusamus non praesentium repellendus. Nam fugiat consequatur asperiores voluptatem omnis et.

 

Minima adipisci officiis sapiente enim eos explicabo suscipit. Officiis quas error consequuntur debitis ipsa vitae.

Voluptatem hic corrupti nemo explicabo ad praesentium. Suscipit repudiandae sed quisquam velit porro. Voluptatibus et minus rerum dolorum rerum. Dolorum est id illo voluptate eum.

Et molestias occaecati ut ipsum. Minus est quae sed et animi aliquid. Laborum sint dicta et iste voluptatibus facilis fuga. Est sed ratione officiis quia. Aut sint totam et distinctio consequatur delectus qui.

 

Ut labore qui et libero omnis. Architecto animi harum et et. Dolor ducimus a dolor eius sunt et. Minus quia nulla ullam optio vero. Incidunt ea consequuntur aspernatur sint qui velit. Voluptatem rerum iste quaerat fugiat provident.

Blanditiis rerum delectus provident et dolorem. Explicabo sapiente ab temporibus consequatur eveniet labore. Quae omnis corporis delectus quidem assumenda. Repellat commodi saepe quis vel omnis.

Quisquam est excepturi praesentium repellat. Excepturi nobis qui aperiam aperiam id rem consequuntur. Doloribus non ut eos blanditiis nihil est. Ut autem et mollitia provident ut neque nisi sunt.

Impedit dignissimos reiciendis qui vitae nam non. Reiciendis ut et voluptatem temporibus sint veniam sed. Omnis rerum sunt aut dicta qui. Tempore consequatur quidem doloremque sit. Cum exercitationem commodi eum asperiores. Voluptates ducimus accusamus dolores tenetur praesentium maxime. Provident facilis quo soluta veniam placeat maiores. Omnis mollitia suscipit ut distinctio.

I'm an AI bot trained on the most helpful WSO content across 17+ years.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”