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It is a hybrid of sales and investment banking---the deals are more complex and longer than what you would consider a normal S&T sale (ie buy 100,000 GS), but still working with traders and in the markets group. You work with commodity producers to help them raise capital, provide financing, create more certainty with future cashflows, while using their assets (the commodity) as collateral.
It involves a lot of VPP agreements, commodity exchange notes, prepaid forwards, etc. A VPP is a volumetric production payment in which a company can set up financing by promising to supply a certain amount of a commodity at set dates up to a set amount. It allows an oil producer to monetize some of their future production so that the can make upgrades or pay down debt. You see it a lot with smaller producers as a way to finance a new oil well with the bank providing the needed seed capital to start drilling in exchange for receiving part of the oil once the well becomes operational.
Commodity exchange notes are bonds that are issued by commodity producers and have some kind of commodities optionality--whether they are linked to the price of a commodity or can be exchanged for a set amount of a commodity. Commodity producers would use these bonds because the interest rate would be lower than if they issued normal unsecured debt.
Obviously all of these require that the sales team be in contact with the traders to help with pricing and coordinate should an agreement call for a physical exchange of a commodity
It sounds very interesting. What kind of a background do you need to have to get into that? It sounds like you need to know a little bit of everything. Do you work at a bank ?
Doesn't really require any special background in terms of advanced calculus or anything like that, just a general understanding of options, finance, etc and anyone could be placed in the group from an analyst/intern class. If you were going to lateral into the position exposure/general understanding of how commodity markets operate (either through trading, market research, operations at a major commodities firm, etc) would be beneficial, but not a deal breaker.
@Gekko --- Wow dude, that's an awesome answer. Really appreciate it. Thanks for taking the time to write all that out.
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