Oil Vs Gas Vs Power Trading, Which one to chose
Hi,
Interested in learning from others on what its like to establish / specialize in each of the 3 big energy commodities. How easy is it to transition from one to the other? I would assume Gas to/from Power have a fairly easily transition ?
Also, what is future career route and exit opp (just in case if one find it isn't suitable) for Gas trader Vs Oil Traders Vs power traders. Which one has the most international demand and the most lucrative in terms of industry compensation, turnover and the level of competitiveness.
Thanks
In my experience financial companies tend to lump all of those into 1 desk or group of traders. It's only if you go to an actual commodity firm like Trafigura, Tullet, even Glencore, where you would likely have to specialize.
In terms of trading at a firm non-specialized, an energy trader can trade all of these products, specific to whatever exchange, i.e. ICE - Brent, GasOil, Crude, then NYMEX crude (and all the arbs that come with that...), Brent-WTI spread, crack spread, NatGas vs HenryHub etc etc. There are obviously products which are more volatile than the other (NG takes the cake) but i wouldn't want to say you get entrenched by ONLY choosing to trade a crude product versus natty gas or even electricity futures.
Most lucrative? Hard to say. The energy traders on my desk that were BIG into GasOil apparently 3 years back were taking home ~500k-1mm those years in bonus alone. Now GasOil sucks for them cause the vol isn't there and they had to learn other products better. So it depends on how the market moves for a specific product, just like anything really.
zeropower - what do you mean by "arbs" above ?
Commodities are cyclical so just depends on which is the most 'lucrative' at the time. right now natural gas is in low demand given shale plays but many think it will come back. Power is somewhat neutral and crude is making a big comeback in terms of demand for talent...butwho knows what the market will be like in 2,3, or 5 years.
As far as globalization of demand, oil and nat gas (LNG) are global products so more opportunity to move abroad if you wanted to live in another country. Given you can't store/ship power right now, it's a domestic product so you rarely see senior US power traders movign to London to trade.
If you work for a hedge fund or smaller organization, you'll have more flexibility in what products you can trade...but if you're not a trader currently, your best bet is to get trained and learn the basics at a bigger firm where you'll likely start in a specific product, eg risk analytics, Real time power trader, gas scheduler, crude analyst, etc.
solid insights guys. I am quite skeptical about NG coming back up within the next couple of years, there are just so much supply ... and even with rigs shutting down, production still seems to be filling market needs pretty well. But maybe more pipelines underground would solve the problem. interested on anybody's thought on gas outlook.
Betting on natty long-term right now is betting on Mr. Obama. Without major regulatory change of some sort, natty has no reason to all out hit a bull market.
That said you do not need a crazy bull market to trade natgas, you need to be long. Is it an easy living no, not by far.
Oh btw, if I was not clear enough I would no way in heck ever ever bet anything on Obama, no thx.
Still, anything could happen...e.g. nat gas hitting 10-year highs (c.$65) mid last-week.
still, all things considered, if i had the option to choose commodity trading focus, i'd always go big oil.
^ agreed, focusing on oil (and any of its derivatives) would probably make the most sense right now. Slightly tangential, but our energy desk got word today that more oil (region specific, I.e. Argus eurobob, Singapore mogas, Urals, etc) are being added to the worlds most liquid platform (ICE). Can only mean one thing for hedgers and specs - more liquidity (longer term) and more options for people involved in oil.
Oil and particularly crude is where you'll typically find the highest comp and competitiveness, but the biggest players are fairly concentrated due to the market's international nature. Power & gas actually get lumped together more often since they are more closely related in their applications. There are a lot of jobs in that sector, although they tend to have a regional/national focus.
Why is that Oil trader has usually the "highest comp" ? Why not corn or iron ore traders ? I don't see why the product you trade is so important when it comes to compensation. Is it because it's "easier" to find a good grain trader than a good crude trader ?
Simple, market depth. We have guys trading sugar here which trade in sizes of 20 lots, quite big for the sugar (NYBOT) market, whereas on oil (nymex or ICE for example) you can have 200 lots and not even move the market. All about liquidity. More liquidity = more opportunities. You can lose just as much as you can make, but always gonna be a higher absolute number in a bigger market.
Well thank you. I didn't think that the market depth would have so much impact in traders compensation. I thought that because the market was bigger you get more players thus reducing the scale potential for every player.
As I mentioned there is lot of opps to trade natty and power still and yes last week's extremes in the Northeast proved that very thing. This is still not a sign at all of a long-term bullish market, that will only occur with regulatory change I would say.
Also the biggest thing to consider, there is a lot more speculation involved in trading power/natty vs crude, I have written in depth about that in the past. So you really have to figure what kind of person you are.
The reason a lot of these firms lump their desks together or pay their crude guys such high compensation is not because of their appetite for VAR or amazing trading skills. Rather they have a much tougher to find specialized skillset, they have important relationships, they know where to find free-options and arbs, they know how to customize contracts, they have continuous deal flow. If you are able to find the right assets/relationships in a liquid market you are golden, who needs VAR when you are able to churn and burn for size everyday.
Crude and products is a much safer bet. With the exception of outright Henry Hub trading in the US, the markets are all quite illiquid and highly specialised. Regionally specific and not really international. Especially power. If you want to make it your life calling, you can make a lot of money if you know what you're doing trading power and gas (see John Arnold). But oil trading is a far deeper job market, and gives you good macro knowledge that can help you trade many other markets. Started my career in power and gas and have been slowly moving across to oil after I realised this....
Gas or Power in US
Can't believe you are critically contemplating which one to go into,oil hands down,stupid.
Oh yeah? Can you explain why?
Power fa shoooo
//www.wallstreetoasis.com/forums/power-trading-electricity-trading //www.wallstreetoasis.com/forums/commodities-trading-5 //www.wallstreetoasis.com/forums/shell-houston-trading-internship
Some others, search function I guess. Basically crude traders take on less VAR, deal with less transparency, are on the phone more etc, Natty/Power dudes stare at a screen all day.
Thank-you for the links !
One item that you might want to consider beyond comp is your personal interest in various markets. After all you'll be doing plenty of homework. When I worked in Fuel Oil I was living in London and traveling to Switzerland all the time, Monaco anyone? In natural gas get ready for exciting times in Oklahoma City.
Power and Gas Trading (Switch from Financial to Physical) (Originally Posted: 07/16/2014)
I'm currently working at a small hedge fund that does natural gas options market making - have been in the industry for about 2 years now as an assistant trader and did a little trading here and there (quote stuff electronically and watch the OTC trades). I have been looking into switching over to the physical side of trading, and just so happens I have landed an interview with a natural gas and power supplier here in the city. They own some facilities out in NJ and have power purchasing agreements setup with ConEd. From what I can find, they have 1 trader I found on LinkedIn as well as another young guy who traded power for them and is now at another utility. The job description didn't say much other than the title being "Energy Analyst" and that they wanted someone with mark-to-market and settlements experience (which I have but on the financial side with options settlements/expiration and MTM). The role, according to the recruiter, has some scheduling duties involved as well.
I'm curious what kind of questions I can ask in the interview to gauge how good or bad of an opportunity this may or may not be. I'm worried since it's a small utility, but it seems like it could be a good way to get my foot in the door. What can I ask about their trading or company specifically to see if it's a good opportunity to learn the physical trading side? In a hedge fund, I might ask how big a book they're working with, what was their past return, and for my compensation what kind of split would I get. How does this work in physical trading? Would I ask how big their power trading book is? Would I ask about returns? How are power/gas clerks compensated usually? Full salary plus a discretionary bonus or would it be too much to ask for a cut of the PnL for the book? Probably some very n00bular questions I'm asking here, but yeah...looking for some answers from people that have already been in the industry. @monty09 @marcellus_wallace @F430 ?? Also, meant to say, I don't know how much a utility would use options, but I know many brokers that see some good flow and could get them good prices if I were working there. They're mostly natty and crude, but a few also do power. Could I use this as something the company would benefit from if they hired me? Or do utilities not really trade options much?
Could've just PM'ed but thought it'd be beneficial for everyone to make this public.
Thanks
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Deleted (sorry, couldn't find the Edit tab for the original post)
Depending on the Utility (and their tariff) their Risk Appetite may be very small and it might be more Cash/Optimizing instead of actual trading. I doubt they would pay your % of PnL, seems more of a Salary Job.
Any more answers? Interview's coming up super soon
PM me
Look at what kind of assets they have. Do they only own a small CCGT or is it a company that owns a bunch of nukes and other assets ? Knowing which hard assets they have will definitely tell you how much you will trade and will also give you a hint of their potential trading strategies.
They probably want a settlements monkey. You might also do some scheduling, which is the equivalent of chartering in oil trading. A plant with a PPA is going to be boring as hell. Basically on and off. Especially if this is Linden Cogen which is my guess.
they are going to want someone w/ physical experience. you won't get hired right into trading. My main concern would be if this small utility has the ability to really train you well.
I did the interview, it went really well. The guy really knows his stuff and we got lost in conversation talking about basis and different things. I can tell he really has a passion for the subject and it seems I will learn a lot from him. They don't do much spec and he outright said they're risk averse, but IMHO it looks like this could be a very educational experience. The guy seems to really know his stuff and has been around the block (investment bank and big physical player).
Missed this, glad your interview went well. I would say you most likely may see somewhat of a paycut, I am sure the guy who interviewed you gets near a % of book but he is the only one. Anyways if you got to talking about basis and so, seems you got the right questions down. You typically want to know what assets they own, which ISOs or trading-hubs they are active in, do they have an ISDA with any firms (to do some financial hedging), what is the typical daily volume they deal with in the summer/winter.
Mainly though make sure its just you and him, or maybe 1 other person. Anything more than 3 people you will not be doing much at all and the paycut aint worth it.
Brokers are a dime a dozen, would never use that to leverage btw.
Thanks
Where is the future - NatGas, Oil or Power (Originally Posted: 11/14/2011)
I was having a discussion with a friend about the current state of natural gas market and the question came up.
Where do you think the future (in terms of jobs and compensation) is for energy trading professionals: natural gas, oil or power? If you were entering the market now, which one would you pick? Is there one (or more) fields that are facing a glut of talent? Are any of the three areas that pay higher than the others?
My thinking was that NatGas might struggle because of the lack of volatility and most money could be made in oil because of the size of the market but hey, what do I know?
Will love to hear thoughts of more experienced folks.
(Copying from the Energy Group as there seems to be less activity there)
http://www.zerohedge.com/news/guest-post-energy-independence-big-lie
[quote=JamesHetfield]http://www.zerohedge.com/news/guest-post-energy-independence-big-lie[/q…] NICE
+1 when I have them again...
Excellent article James. Petroleum isn't going anywhere.
Just to clarify for everyone else as I think I may not have made my original questions clear enough: within the energy industry, which field will you pick for trading considering everything you know, oil, natty or power?
I trade NG and Brent. What's your background like? What type of role are you interested in? More quant./technical/ programming or macro/generalist? All three trade very differently depending on the strategy and type of firm.
I wanted to say natty and power were down for the count. Vol's are gone, basis is pointless.
Then the last week happened, either way you are getting a lot less of these weeks then other their areas righ tnow.
"Where do you think the future (in terms of jobs and compensation) is for energy trading professionals: natural gas, oil or power? If you were entering the market now, which one would you pick? Is there one (or more) fields that are facing a glut of talent?"
I don't know too much about power, but natural and crude I guess are ok. My group does both so I don't know of which. As for "gluts" of talent, this is a shrinking industry, or at least definitely not growing, on the financial side so idk.
Where is the future - NatGas, Oil or Power (Originally Posted: 11/13/2011)
I was having a discussion with a friend about the current state of natural gas market and the question came up.
Where do you think the future (in terms of jobs and compensation) is for trading professionals: natural gas, oil or power? If you were entering the market now, which one would you pick? Is there one (or more) fields that are facing a glut of talent? Are any of the three areas that pay higher than the others?
My thinking was that NatGas might struggle because of the lack of volatility and most money could be made in oil because of the size of the market but hey, what do I know?
Will love to hear thoughts of more experienced folks.
all of the above
From what I have seen there seem to be a few hedge funds trying to establish power desks. I have had the opportunity to trade PJM despite having never traded, much less traded PJM (I have worked at a pretty well known prop shop, just not as a trader). So, for what it is worth, I think the power market will be quite lucrative and has a lot of room for growth. I cannot speak to the other markets but I would agree with monty09. There's no reason to think that NatGas, Oil or Power will not offer a lot of opportunities to traders going forward.
IMO, Gas for sure (possibly Power) will offer the best volatility, trader's haven for basis and spread trading, lots more large scale arbitrage opportunities in oil, not to say basis and arbs trading aren't there as well
Power or NatGas (Originally Posted: 05/08/2012)
I'll be starting with an energy trading firm this summer and was wondering if anybody had any input regarding the future (5+ years) for natural gas and power trading. A similar question was posted recently (//www.wallstreetoasis.com/forums/best-energy-commodity-to-trade), but that one was more about compensation. I will have the opportunity to preference a product, and while I have my own thoughts and opinions on the matter, I thought some outside advice might be useful. If the firm has greater expertise in one product, might that be better for me long-term?
Thanks
Have you read the latest on John Arnold closing his hedge fund? He was one of the largest natural gas traders in the world and he had to close because the market is practcially dead with all the volitility dried up.
Check out this article: http://www.bloomberg.com/news/2012-05-02/john-arnold-closes-centaurus-h…
Also this one is pretty good on the state of natural gas and the general commodities market but with typical zerohedge rhetoric: http://www.zerohedge.com/news/john-arnold-closing-centaurus-energy-mast…
People will always need power so there will almost always be a need for power traders.
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