Q&A: Physical Oil Trading

Bullish for the standard reasons - anyone who thinks the oil business is going anywhere is delusional. Anyone who thinks trading is going to phase out has no idea of what it actually involves.

Of course markets get more competitive over time particularly as transparency and price discovery without having to participate in the market increases. There will obviously be changes in the regulatory environment as well as time goes on. I'm of the opinion that happening like this really just manufacture new opportunities and new markets that didn't exist before.

Lots of questions here - sounds like you are a pretty junior guy and no sweat, but these questions are kind of difficult to answer:

I am fairly new to my seat and my 'edge' at this point is certainly not in the futures markets so I will occasionally piggy back ideas I hear but I'm never fully comfortable with these trades, just very confident in the guys doing them and the fact I watch them put their money where their mouth is.

I don't understand the question about trading paper across the curve or the full barrel?

In terms of spec - you have a PNL and you either are doing things that make money or are doing things that lose money. I have a system to trade around but it's not like that system is guaranteed to give me money and I'm just getting paid to be present in an office (which I'll admit is what a lot of traders seem to get paid for). The market and your system can give you information and you try to develop this into a view.

Not going to disclose profit targets but I'm expected to reach them with day to day PNL within my VAR limits.

How long you hold it for depends on the trade but this is kind of a buzzwordy question that doesn't really make sense in the world of physical trading.

Please see above - you will likely not start in ops or risk unless it's a pseudo ops or pseudo risk role.

Also, this isn't really an exit ops business. Your exit opps would be to go somewhere else that will pay you more or you like the people more to do their ops and risk.

You obviously don't know shit about trading, but ops and risk aren't the traders slaves and trading isn't the end all be all. Most people think they want to trade but I really think a lot of this is due to the sweet job title and false assumption that traders make so much money because they get to trade. This is like assuming Mike Trout makes a lot of money because he gets to play baseball. Mike Trout makes a lot of money because he is good as fuck at baseball. Highly paid traders make a lot of money because they are good as fuck at trading. No one is going to pay you or me or even give us a shot at a role where we could get paid to play baseball because we don't show anyone anything to get them excited about our baseball upside.

I'm trying to not rant as this is a huge pet peeve of mine so in summary, there are no exit ops and ops is a sweet job that is high-stakes, fun, and pays a shit load - BACK TO RANT - AS IS ALMOST EVERY OTHER PROFESSION WHEN YOU'RE GOOD.

Delete

Be careful about how you phrase things like this - because you mentioned racks with those shops I know the exact two places it could be.

My honest advice would be to not take that role - that job will be HORRIBLY boring and you're not going to even be on the bench for an ops or even mid-office type role. Having said that, it does get you into the industry and you're still in a position where you could catch a break but it would not be at your shop. The big shops pay people a lot to be good at their jobs - majors and other shops pay you partly in cash and partly in development opportunities - the latter of the two is just not really the business a larger trade shop environment is in for with its employees. Those are the places to go TO once you are already doing what you want to do.

This goes back to something I think I alluded to - if you walk into a trading shop a significant portion of the people there are under the delusion that they are on their way to being a trader. This will just never happen for the overwhelming majority of them. Further, and this can seem arrogant, you will probably know if you are "one of those guys/gals" that might get a shot, probably in pretty explicit terms from the traders and management. There are some names at my current shop that still aren't near the stage of development they need to be at to trade but I have the sentiment that if they stick around and continue to produce quality work that giving them a shot could pay off. A lot of these types I like to try to spend time with and at least tell them how I approached things in my career and help them understand how we're going to hopefully make money by doing what we're working on. There are other people who I feel like "could" get it because they produce quality work but I'm not totally sure what their aspirations are. These are the type that I think could benefit from some internal networking and stepping up on some ad hoc type projects. Another type (fairly high percentage) are those that I know are interested but I just don't think particularly highly of and could not in good conscience support even if I like them personally and try to keep them motivated. This is probably the most annoying type as I feel like they try to speak to me in "knowing" ways and speak about themselves relative to the obvious underachievers like we're in on some joke together. This is probably your standard average employee at a lot of enterprises who of course want to make more money but don't seem to understand that they are getting paid to do the shit thats asked of them timely and correctly and it isn't really deserving of accolades or advancement opportunities at the level they feel their entitled to simply for doing their job satisfactorily.

Side note on this, could just be personal preference and not any kind of physical trading advice, but nothing annoys me more than people talking about how long of hours they are working and always having someone or something to blame. The people that are well liked are the types that despite these sort of excuses possibly existing, somehow manage to miraculously get it done and don't expect anything more than a paycheck.

I can feel this devolving into a rant so I'll bring it back together. With your experience, I think you could do better than settlements in terms of finding a way into the industry in a role with more visibility and more engaging work if you are patient. HOWEVER - everything is about risk and if you are interested in the business and want to bet on yourself to out-achieve the lot you're given, it definitely puts you closer than you are now, but if you were my cousin or friends brother I'd probably say to keep looking. Feel free to post in here again even far into the future if you find another role and I will respond

Really depends on the shop. You really have to think about what each place is going to look at in their KPI's. In certain instances, it's best to probably reward a hard worker with the job on the pretense that the asset does the all of the hard work and you need someone to manage it and be creative within the defined scope of the business. If the book prints $100mm a year and the personnel can take that to $101mm with a high performing scheduler/analyst versus 98-110mm with an experienced gal that takes more risk, I'd be inclined to say they'll go with the former and be happy with the $100mm (in an organization that size with a system that facilitates that). I think it's a really different thing than a book that is looking to take money out of the market and makes/loses $0 without anyone, loses a bar and makes up to 5mm with a new guy, or loses 5mm and makes up to 25mm with someone that's shown they know what they're doing.

Bullish or bearish from a career standpoint?

Whatever you are interested in. There are lots of products that don't really interest me or suit my skillset but that doesn't mean there aren't guys that trade the hell out of them. I'd probably say just wherever you can get on a desk that interests you balanced with who you'll be learning from. To give an example, I don't find natty even remotely interesting whereas I feel like things like coffee and sugar are fascinating. Having said that, I would rather go work for a badass natural gas trader that I could really learn and develop under versus a coffee trader that basically amounts to a marketer/distributor. These aren't perfect examples because I don't know much about either and there is extreme nuance to every circumstance, but I think it kind of gets the point across. I would not gun towards a product based on what you think the market might look like in X amount of years and certainly not write one off if you have good guys to go learn under. By the grace of God, markets are constantly changing and you don't sound like you're far enough along in your career to ride or die for a certain product.

IB was never in the equation nor is it considered an alternative to a physical trading role. I would not do well in IB. I've also addressed my views on physical trading as a career. Please do research or at the very least bother to read the replies in the very thread you're writing in before creating valueless posts.

Posters like you are why AMA's go to shit and often provide no value to the type of people I am trying to help with this AMA.

1. Most of the guys I work with started in physical trading but I know this move happens from trading another product like this and moving over to commodities. You're probably a smart guy so will pick up the physical quickly but it does take time. How are your hard skills? I'm trying to think of how we'd use a guy with your background and nothing is popping out to me. Maybe if you have some interesting ideas of how to look at things? Also, I'd assume you have some kind of risk tolerance.

2. Natural gas has close to utter transparency so it's quite technical. This is really all dependent on style. It's harder to get good information on oil so its basic economics combined with knowledge of logistics on making call. As far as resources, nothing can really show you how the market functions so I'd just read the basics. RBN energy has some good stuff but can get really granular and kind of boring.

3. Creeping in but really, really excited about what it can provide.

4. I don't make calls like that. The world is just swimming in oil right now. The thing that kills markets are not having dislocations. As long as there are net producers and net consumers someone will make money,

Good strategy and really pleased to hear a degree of patience, you sound like a level headed guy/gal. I'm hesitant to say having a time specific goal may set you up for disappointment BUT, as with many things and life, timing and chemistry (sometimes DESPITE aptitude [although not likely at great places to be]) are so important in a career.

There is actually quite a bit to unpack here and I'm trying to think of how to structure this.

First off, check my above post about the majority of people in a trading organization thinking they may get a shot. I think a colloquial way to put this in an encouraging light is that although ANYONE has a shot, that doesn't mean EVERYONE is being considered for one. To me, knowing exactly what is going on in parts of the business that influence trading calls selects the anyone from the everyone. The good news is that LOTS of areas of the business influence trading calls.

Stick with me here - it's my view that the trader needs to be highly skilled at all of these functions. To go further, I think the trader should expect themselves to to be conceptually better at these functions than the person doing them. Extraordinarily dark example, but I think of Oona Chapman in the Black Mirror: White Christmas episode:

*

*

The "real" Oona Chapman has other stuff to focus on apart from orchestrating the perfect morning routine, but if she were, as a third person (which she is), good God is it flawless. That is how I view mastery of the other functions. If you had the time to focus on the minutiae of everything, you could do it perfectly because you know exactly how it "should" work. Now just imagine instead of a morning routine, what is being co-ordinated is a trade lifecycle.

Now to tie it back, when you say understanding the trade life cycle will set you apart from the pack, I disagree. I think it baseline qualifies you to be in the mix. Really sorry for the gratuitous Black Mirror thought experiment analogy, but the advantage of a third party version of ones self planning ones day resonates very strongly (this is a fantastic and hugely popular episode). By the same logic, it stands to reason that the complete understanding of executing what you have decided is a good day should also go into what you have decided is a good trade.

My point is that you need to be well rounded and have a complete understanding of everything that affects your books PNL, but, I'd hope that you view this as an expectation rather than a distinguishing factor for allowing you to risk and potentially lose MILLIONS of dollars of money that isn't yours.

As for shop size, hard to answer. I'd encourage you to view this as "where are there seats that I'm qualified to take". Since you're looking to get into your first trading role, you're going to need to land at a place that either has small books OR large books that need or want juniors. You're best scenario would probably be finding a profitable larger book that can take you as a junior to run a part of a business. The reason majors are good is because people can move off of a profitable desk to a new role but still be within the organization. Similarly, medium and larger trading shops are lean and get stretched thin so sometimes have needs for younger guys to come in and build/optimize within areas of a business that are already profitable. These are good places because seats on good books open up and the personal and institutional knowledge that made the book profitable didn't necessarily leave to give you your seat. Other scenarios that still give you a shot but less of a chance of success is someone leaves and there's an existing vacancy which is a different circumstance from what I'm describing above about medium+ shops. People normally leave a seat for two reasons - they either lost money or they made a lot and think another shop will let them have more of it. In the former scenario, you kind of want to hope the guy blew up from having too much risk versus being a shitty trader. Reason being, if he just got fired for being shitty that means the knowledge on how to make that book profitable probably isn't there yet. In the latter, if that guy didn't leave you some neat toys or institutionalize his knowledge, you'll need to rediscover how he made money. Kind of a moot point, but in any scenario you still need to find new ways to generate positive PNL.

Dude I'm going to be honest with you, I just read some of your other posts and you sound like an absolute bonehead. Your questions shouldn't even be dignified with responses because I've already addressed all of them except for #3.

1. I made no predictions on the oil industries performance as a sector but I am a very strong seller of anything meaningful happening. Climate change advocacy is a feel good ideology that I think can only be afforded by people who have discounted to 0 what devastating and likely impossible legislation would cost them in income and quality of life. If you feel you've caught something everyone else in the market seems to have missed, why don't you sell every long dated gasoil contract you can post margin for. My opinion that I've already stated is that the oil business is here to stay until we reach singularity. I think your conflating trading with oil production so I'm not sure on how to respond - you describe two (what you think are) pending volatility scenarios. What is it that you are contending with this? That they will not be good trading opportunities? The very fact you think that I'm wrong about something means you have someone to take the other side of the trade and we can't both win. Markets need guys like you in them.

2. I've addressed this and you've clearly not read any of the thread.

3. Can you refine this to an answerable question? I'm really not a big follower of LNG so I don't have a real strong view on it. My view earlier in my career was to avoid that desk because I felt the production and logistics limit the market participants too much to have it traded in a way that would interest me. It sounds like lots of people made a fortune in LNG this year though. I really wouldn't put too much stock into the few thoughts that I have on LNG.