Saw some threads on this but most were a few years old. Wanted to revisit which energy commodities are the preferred commodities to trade among the experts here. There seemed to be a strong preference for NGL / LPGs relative to others such as crude or refined products. Do you still feel the same way or which commodity do you prefer going forward? Do you think some have a brighter path ahead than others and why? Would you consider a marketing or supply role significantly different than a trading role in those commodities? Presumably trading is more speculative, but you are still optimizing assets and logistics at best pricing, just maybe less directional bets on price...
Thoughts?
Nat gas basis is good times.
Crude basis and diffs starting to get some financial volume.
Basis is where its at...
It is trading the regional price differences..much more focused on micro supply/demand. For example Permian oil and associated gas production are beginning to overwhelm transportation capacity out of the basin, so natural sellers have to discount their production more and more to either create more takeaway options at a higher cost (like rail or trucks for oil), or to the point of pain where producers shut in. The real trading here is about understanding the logistics and supply/demand of each pipe or basin and as it grows it plays out regionally.
For gas, for example, Canada is growing, Permian and Midcon is growing and the NE is growing...what are the affects on pricing in the regional markets to deliver the supply to the demand growth in the Gulf Coast? Somebody here said LNG is going to be great trading, which I agree, but its a lot more fun trying to figure out how all of that US LNG export demand growth is going to actually get their supply and speculate on what the market has right...
How have you found the switch from energy to grain so far? And why did you make this switch? I am curious because I am currently in grains and considering opps in energy.
I would say it really depends on what you're looking for.
I took a slight pay cut to make the move but to me it has been worth it because of the better lifestyle, moved to a city I enjoy more, I have been given more responsibility, etc.
On the other side of that, if you are after the money and enjoy a fast paced cut throat atmosphere then energy is the way to go. It is all shop dependent obviously but in my experience I have found energy to be much more fast paced, much more technologically advanced, data driven, etc. Grains to me seems much more like old school trading from a physical perspective. For example, at the energy shop I was at a big part of my job was building out and maintaining models analyzing basis and basis vol for multiple locations across various commodities and things like that. At the shop I am at now we don't even have the add-in in excel to pull historical data in and we are the largest player in the country in the space we are in.
Thanks for the response. How has the learning curve been so far? Were you trading at your last job in energy or in another trading related role?
I can relate a lot to what you are saying about the grains side being old school. Interesting to hear you say that though, as it is always something I have suspected but never had confirmed. My theory is that part if this has to with how opaque certain areas of the grain industry are, and the primary way of gathering information is still from talking to ppl in the mkt. For instance the primary ag. commodity that I trade, has no direct futures on the commodity exchange, and there is no way to find its historical basis or basis vol unless your company has been keeping pvt records. Compared to my peers in energy trading, I've also been given more responsibility a lot faster than other entry level graduates at the top oil shops. Now, this is by no means due to my ability but I think its more likely due to "old school" mentality still pervasive in grain trading. This combined with the ability to hand a fresh grad a small book of clients (say via a lesser traded ag. comm) and know that if they mess up a trade they are losing tens of thousands of dollars instead of tens of millions.
Do you think with this gap in data and data driven decisions in ag there are more lucrative trading opportunities, and opportunities to improve in the future?
Interesting conversation nonetheless. GMG ...any input on this??
You're hit the nail on the head here with regards to responsibilities in Ags vs. Energies. It's a much simpler process to move up the ranks if you show the right attitude.
The gap in data availability is huge, and the speed of uptake in new technology is painfully slow. I personally find commodities tech a really interesting space and would love to get more involved in the field.
Honestly - you can survey a bunch of farmers, who are not obligated to tell the truth, about their planted area and create a USDA report with planted acreage for crops, or you can use satellite imagery overlaid with the unique photosynthetic output for a specific crop and calculate planted area that way.. To me it's a no brainer - to CTO's at the largest Ag commodity traders it's like talking to a brick wall.
The compensation gap in my opinion is big but not huge, and work life balance more than makes up for it. In a good year in energy you will earn more than in Ags, but in an average year the spread narrows. Work life balance in my experience varies massively, but on the whole is considerably better in Ags. Average 50 hours a week vs' my opposite in energy on 60.
Also, the art of grain merchandising is a good book, however I found it a bit heavy/slow and a little old school. Good theory though. I had a good training programme at my first role which reduced the need from it, worth a read if you can pick up a copy. I would push for your work place (if Ags) to get a copy of it to share with new starters and grads.
Yes, it is the exact same thing.
What physical trading doesn't revolve around trading basis is the real question here.
I for one am not a total believer that NGL's are necessarily going to be such a great place to build a trading career. My reason for thinking this is because, despite massive market growth and huge infrastructure developments, I feel that producers and consumers in that space are too sophisticated for traders to add much value - particularly given the transport constraints and requirements of moving NGL's compared to atmospheric liquids.
I think that there is no doubt that there are fortunes to be made in NGL's, but I feel they will come from savvy asset development and ownership (gathering, processing, transport, storage, etc.). What I mean by this is that it seems like it could be difficult to attribute profitability to anything but asset ownership and access. That is not to say that the seat won't generate massive profits, but I am not convinced that the seat will be compensated the same as someone who needs to move in and out of positions to make money.
I am by no means an expert and could easily be wrong, if someone with more NGL exposure could paint a more correct picture I would be extremely appreciative.