11/17/16

I was recently offered a summer internship at an oil major at a certain location, my home town, in their natural gas trading program and accepted it. I am extremely excited about the opportunity! But, I have always been interested in crude oil. Maybe I am a little biased; as I took a certificate program in Global Oil & Gas Management that was strongly focused in crude? Since then, I have been doing quite a bit of reading into the news and the process of crude trading. But, upon receiving my internship offer, I found out that their crude trading is actually at a different location than their nat gas trading for this major. I was hoping to get to touch a few different commodities before having to pick one commodity career path over another.

I guess what I am asking is:

What are some of the biggest differences in a day in the life of crude trading vs nat gas trading and career potential? (I once found an article that really dug into this topic but haven't been able to find it again)

Would it be frowned upon to ask if I could be transferred to a different location to see what crude would be like if I am offered a position into their graduate program?

Any other advice or insights?

Thanks

Comments (44)

11/13/16

Let me guess, you got an offer from BP in their Houston office but instead want to be in Chicago?

Financial Modeling

11/13/16

haha that obvious? But it's not that I want to be in Chicago. I would actually much prefer to be in Houston, as that's where I'm from and I love it there. But, I did want to be able to touch a little bit of a few commodities to see what they were like before I chose one commodity career path over another.

11/13/16

Yeah I didn't mean that you wanted to be in Chicago for the city. More so for the crude desk.

I am just a student too but I am in Houston so I will give you my take on it. I can't comment on what it is like to trade any of the products so I won't get into that. But based on what you said it seems like the Houston spot is better.

You are in the energy capital of the world. Providing you more chances to network with people at other shops and build relationships. You mentioned you would like experience with different commodities. That is only going to be available in Houston. BP's crude desk in Chicago is an outlier. Here in Houston there are all the majors, trading houses like Vitol, Trafi, and Noble, and tons of midstream groups like Kinder Morgan and Enterprise. These companies trade everything under the sun and offer many, many more chances for you to land a trading gig somewhere. For example, say you are in Chicago for the internship then and end up landing a full time gig there. You do the three year rotation, aren't offered a trade seat (which is a likely scenario given how competitive those things are), and then decide you want to go to a somewhere else in order to become a trader. If you were in Houston it would be very easy to make that switch given the chances you would have had to network and the number of opportunities. This would most likely not be in the case in Chicago.

11/13/16

That is a good way to look at things. I guess I hadn't factored in the opportunity to extend your network in Houston vs Chicago. But, I have read it can be difficult to switch commodities during a career path, so a transfer to a crude desk or any other commodity in a different company may be a difficult opportunity to come across while working in nat gas?

Just out of curiosity where do you go to school (U of H?) and where have you applied?

P.S I don't believe BP's Chicago office is just a crude desk? I am pretty positive that is where they trade crude, gasoline, jet fuel, ect.

11/13/16

I have heard the same thing as well about switching between desks being difficult. I am sure someone else could chime in on that and have a much more knowledgable answer though. Switching commodities might be difficult but companies isn't. Which is why I think Houston offers more opportunity than Chicago.

I am getting my masters at Rice right now. I applied to all the majors and trade houses with graduate programs. I got interviews with most of them but the feedback I got was that I lacked enough experience from a quantitative perspective. For example, talking with the HR manager at one of the large trading houses he said the person they chose over me had an internship at an investment bank and at an oil major in one of their trading programs. Sometimes you just get beat.

So now I am applying to some of the smaller shops and midstream companies here in town to get on their trade desks. They do recruiting a little later, if at all.

I am not sure about what BP has in Chicago. I would imagine a couple minutes of googling would provide that answer though.

11/13/16

Best of luck on your recruitment, let us know what you end up doing!

Best Response
11/14/16
Rotterdam:

I have heard the same thing as well about switching between desks being difficult. I am sure someone else could chime in on that and have a much more knowledgable answer though. Switching commodities might be difficult but companies isn't. Which is why I think Houston offers more opportunity than Chicago.

I am getting my masters at Rice right now. I applied to all the majors and trade houses with graduate programs. I got interviews with most of them but the feedback I got was that I lacked enough experience from a quantitative perspective. For example, talking with the HR manager at one of the large trading houses he said the person they chose over me had an internship at an investment bank and at an oil major in one of their trading programs. Sometimes you just get beat.

So now I am applying to some of the smaller shops and midstream companies here in town to get on their trade desks. They do recruiting a little later, if at all.

I am not sure about what BP has in Chicago. I would imagine a couple minutes of googling would provide that answer though.

keep in mind you dont get a choice of product when you pass the TDP exam. So lot of what ifs and you dont make the final call anyway

11/14/16

Yeah, that is what I was trying to get at with saying switching between desks being difficult.

11/14/16
ASUgrad2017:

haha that obvious? But it's not that I want to be in Chicago. I would actually much prefer to be in Houston, as that's where I'm from and I love it there. But, I did want to be able to touch a little bit of a few commodities to see what they were like before I chose one commodity career path over another.

Do Nat Gas then ask to be in NGLS in Houston. You can thank me later

11/14/16

thanks, it's nice to see you back active on here

11/16/16

Curious to know why you suggested the move to NGLs from nat gas...

11/16/16
quester:

Curious to know why you suggested the move to NGLs from nat gas...

better market

11/17/16

Better than just nat gas? Or LNG/crude/refined products? And why do you think that's the case?

11/18/16
quester:

Better than just nat gas? Or LNG/crude/refined products? And why do you think that's the case?

I dont think. I know

11/20/16

Ok, what is it that makes NGLs a better market than nat gas and other markets?

12/17/16

Wide open physical arbs right now.

1/7/17

Wide open Physical arbs right now.
Why this full of Non sense statement.

Array

Financial Modeling

11/13/16

Don't want to hijack the thread, but have a relevant question. I'm going for this program in another location. Any interview advice? How competitive is the program?

11/14/16

It seemed pretty competitive during the super day. As far as interview advice, be fimiliar with their values and simple price arbitrage

11/17/16

Not sure if you're applying for other trading positions, but commodities will tend to be more fundamentally driven, so brush up on S/D balances, marginal cost of supply, incremental demand, etc. Trading simulations and case studies are also common so know that is coming your way.

11/18/16

Calgary?

11/18/16

Yeah why?

11/19/16

Know some dudes there. They love hiring out of the Alberta schools and Ivey. Looks like you're a UBC guy. They shifted their hiring practices recently to focus more on hiring 1-2 superstars that would pass the trading test at the end rather than 6-7, of which 1-2 kids would get through, since they felt like they were training too much of their competition.

PM me if you have any more questions

11/19/16

PM'd

11/14/16

Former gas trader here so my opinion is obviously biased. In my opinion gas is the better market to trade. You have better availability of data; so much so that you can model the entire North American system. There is better volatility in locational pricing as gas can only be moved by pipeline. While crude can experience good differentials due to the marginal molecule being moved by pipe, truck or rail the day to day vol doesn't tend to be as fun. Plus crude (and product) pipelines have the exact opposite transparency to gas.

Short answer for biggest differences? Nat gas trader sits around all day and worries about weather. Crude trader sits around all day and worries about gdp growth, geopolitics and opec.

11/14/16
Washedupandburnedout:

Former gas trader here so my opinion is obviously biased. In my opinion gas is the better market to trade. You have better availability of data; so much so that you can model the entire North American system. There is better volatility in locational pricing as gas can only be moved by pipeline. While crude can experience good differentials due to the marginal molecule being moved by pipe, truck or rail the day to day vol doesn't tend to be as fun. Plus crude (and product) pipelines have the exact opposite transparency to gas.

Short answer for biggest differences? Nat gas trader sits around all day and worries about weather. Crude trader sits around all day and worries about gdp growth, geopolitics and opec.

agree 100%. You will see Nat Gas traders move on to a ton of different things post a major while you just dont see the same in crude or products

11/14/16

thanks for the input! I have never been a huge fan of the fact that one sentence spoken from the Saudi Arabian King or Prince can impact the price of oil by up to 10%. It seems like nat gas is more reactive to traceable and more predictable price drivers? Also, would be concerned about the growing glut for nat gas, not to say that oil is any different right now?

11/14/16

It is correct to say that nat gas trades on a more fundamental basis than crude (in the futures market). I would say that both cash markets trade very fundamentally but I am not particularly well versed in physical crude.

The weather is a huge component of gas; good traders attempt to structure their trades in such a way that they are not weather dependant. Although virtually no trade in gas can eliminate the weather.

I would expect the good crude traders attempt to mitigate the randomness of Opec or other geopolitics - although I think that might be harder.

As someone starting in gas I don't think I would care about the low futures price right now. You are looking at several years before you do any real trading.

12/15/16

Thanks for all this info.
One question, when physical traders are running paper books on the side, are they ever running a true portfolio or just one off positions?
I never understood you're a pure 1-2 product commodity paper trader (say at a fund) how you manage AUM. Are you really allocating all of your say $100mm of capital to just a few variations of flat price & spread trades in the 1-2 commodities or am I missing something about how risky that is?

12/30/16

i think you're using physical to mean non speculative and paper to mean speculative. in commodities that's not entirely correct. A cash book (which is physical) is generally non speculative.

people do it all different ways. sometimes traders that trade the cash just speculative in their single cash book and might even have their storage in their as well. thats a really bad way to do it as at the end of the year you have to try and untangle was it transport, storage, customers, or spec that made the money? (because transport, storage and customer pnl gets paid out at a lower rate).

the best way is like you said to have a separate book for each strategy. typically if someone has a separate book they'll be trading it actively up to their risk limits. I've never seen someone given speculative authority for a one off. (a one off risk limit for a big trade happens all the time).

AUM doesn't ever really come into play. (It obviously drives things such as how much capital is available to post margin and thus determines how big a loss you can sustain.) The correct way to think about it rather than the allocation of capital is the allocation of risk - how much you could lose on a trade, how much you could lose in a day. A traders allocation of risk is always fluid - for example - in Q3 of a great year it was nothing for me to lose 5 million in a week - or to risk 10 million on a trade. But on Jan 1 of a new year; when my pnl is 0 for year I wouldn't want to lose more than a million a day and maybe 2.5 million in a week and say 5 mil in a month. The reason for this is that in Jan if your book is down say 5mil you're a drag on the bonus pool and none of your coworkers want to pay for your losses.

You would be amazed at the number of traders (junior and senior) that don't get this concept of risk - they think that because their VaR or volumetric limits are the same they can use them with impunity.

But back to your question - yes - most portfolios are concentrated around a handful of trades. In a perfect world you would have a bunch of traders with uncorrelated portfolios creating a portfolio effect within the fund. However the risk is always allocated to the successful so you typical see highly concentrated risk. (Think Amaranth)

The returns put up by successful traders / funds are not indicative of a balanced uncorrelated portfolio.

Hope this helps

12/31/16

Awesome answer.

Interesting. Everything revolves around a handle of large and successful trades in these houses.

11/16/16

This. Gas is really a much more exciting market to trade.

11/16/16
Washedupandburnedout:

Former gas trader here so my opinion is obviously biased. In my opinion gas is the better market to trade. You have better availability of data; so much so that you can model the entire North American system. There is better volatility in locational pricing as gas can only be moved by pipeline. While crude can experience good differentials due to the marginal molecule being moved by pipe, truck or rail the day to day vol doesn't tend to be as fun. Plus crude (and product) pipelines have the exact opposite transparency to gas.

Short answer for biggest differences? Nat gas trader sits around all day and worries about weather. Crude trader sits around all day and worries about gdp growth, geopolitics and opec.

Definitely agree with this statement, I sit as a crude desk analyst at a oil major in London. What you usually find is that gas is far more of a quantitative field and therefore strong mathematics and modelling are very beneficial, whilst in crude it is important to understand you core fundamentals a lot more, as they are often the cause of many market fluctuations.

11/18/16

Power trading here.

That last sentence is phenomenal, and I agree.

11/14/16

.

11/17/16

Sit on a crude & products desk currently, but have done rotations on the gas side. I think it is important to make clear here that when you are new to the field, 0-3 years in, it is possible to switch markets and is at times encouraged to understand how different markets function. However, once you become more knowledgeable about a specific market transitioning becomes much more difficult. In your example Nat Gas (US focused), basis gas trading (regional focused), and crude (globally focused) are three very different skill sets.

11/17/16

Can you try to clarify what personality traits and skills might transfer over best to each of those three? thank you

11/17/16

So I'd say the biggest differences between products and desks is going to be driven my the scope of the market. If you're on a crude desk trading WTI & Brent financial futures and swaps you have a very broad macro market to track. On crude you look at supply and demand balances, storage changes, pipeline outages, cargo movements, OPEC chatter, EIA & API numbers, managed money positioning, physical cash markets, diffs between regions, retail flows, etc. Whereas on a US focused desk, such as HH Natty, you'd look at pipeline movements, imports & exports, power burn, weather, etc. Then, in market such as power you're looking at individual powerlines, power plants, weather in individual cities, etc. Let me know if you'd like more clarity.

11/17/16
ASUgrad2017:

Can you try to clarify what personality traits and skills might transfer over best to each of those three? thank you

personality traits are the same in any trading firm. I have yet to see one stand out as a must have or one that will limit your career cause of it

11/17/16

Monty, is there any possibility of a return of the Energy Rodeo? It sounded like an amazing event in previous years

11/17/16
ASUgrad2017:

Monty, is there any possibility of a return of the Energy Rodeo? It sounded like an amazing event in previous years

it never stopped... 6th one in 2017

11/17/16
11/18/16
11/21/16
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