3/19/17

I feel like it is often said here and at times overdone, but while every day is a bit different there are certain tasks that happen every week or month. I'm going to split the below into three different types of days to compare.

Day 1: Weekly and Monthly Updates

Monday is generally the day of the week in which I get most of my once a week tasks accomplished.

5:30 AM
Wake up, walk the dog while listening to a podcast, get ready for the day, pack my breakfast, and make coffee.

6:30 AM - 7:30 AM
After arriving to work and getting my breakfast out I fire up my computer and load everything to get the week started. On a trading desk this process takes a few minutes as I load multiple instances of excel, email, Bloomberg, ICE chat, and PDFs to read from over the weekend.

From here I begin to update the first set of sheets. In oil markets, it is important to follow refinery turnarounds, or TARs, especially during the maintenance seasons of the fall and spring in the US. Each week when the EIA numbers come out one of the headline numbers is for crude runs, inputs into a refinery, and these numbers are dependent on refinery TARs. For each sheet to not become too large each unit of a refinery, crude unit, hydrocracker, etc. are updated one at a time. After updating all the TARs, I will look at any w/w changes.

Next, I update several margins and prices files that we use daily and feed into other fundamental data sheets.

7:30 AM - 8:00 AM
Walk to Starbucks, chat with one of my friends on the desk, catch up on the weekend.

8:00 AM - 10:30 AM
Update historical and forward margins and look at the changes w/w for different grades and regions across the US. The US is split into five sections, called PADDs, and different regions use different crude slates, which can include crudes that range from light to heavy and sour to sweet. These differences in types of crude impact the cost as well as type of refinery that can run the crude.

Oil markets are traded with spreads to incentive storing your oil or moving your oil to a more profitable location (in oil markets intermarket spreads are called arbs, with the most well known the WTI - Brent arb, the most traded crude contracts). I update an arb sheet that looks at historical and forward estimate price differences between different locations as well as the freight cost between those locations to determine if any of the arbs are "open." If an arb is open, the economics make sense to move the crude. Then, an owner of a VLCC (very large crude carrier of crude) cargo can elect to move the oil to the more profitable location.

10:30 AM - 11:00 AM
Shoot the shit with the desk. Talk about what new movies are out, what went on that weekend, new talent on CNBC, make me a market on "fill in the blank," any other tangents we get into.

11:00 AM - 11:30 AM
Grab lunch, vent about anything that happened thus far that day.

11:30 AM - 2:00 PM
Once a month the EIA releases monthly data and we must update our sheets to incorporate this data. The EIA releases weekly data, but then there is a 2-month lag and a revised version of the data for the month. We look at any differences between the weekly data and monthly data such as production, demand, crude runs, imports, exports, etc.

2:00 - 5:30 PM
The days begins to wrap up and traders mark their books, PnL is run, trades are reconciled, and the trading day ends. Now is usually a good time to get some reading done which can consist of research from the banks, opinions from other funds, daily news from BBG/Reuters, updates from OPEC/EIA/IEA, several vendors we receive commentary from, and emails sent around the desk.

5:30 PM - Bedtime
Head home, take the dog out, hit the gym, dinner with the fiance, catch up on some reading/TV.

Day 2 - EIA Weekly Data Release and Forecasting

For brevity, I won't repeat similarities from the above day.

7:00 AM - 8:00 AM
Roundtable chat about the markets, what's driving the macro picture, positioning, any data releases that week, any market events, news updates, market updates, etc.

8:00 AM - 10:30 AM
Look at the internal oil supply and demand balances. We break down data between monthly and weekly data as well as across products and regions. So broadly there are global crude, global gasoline, global distillate, European crude, Asian crude, etc. Analyze the past several weeks, y/y changes, trends or shifts over the last 5 years. Compare our balances to outside numbers.

10:30 AM - 12:00 PM
Update weekly numbers and look at our forecast vs. the realized numbers. What are the most important factors that week, what is the market focusing on, how are the next weeks/months shaping up.

12:00 PM - 2:00 PM
Talk with the research team and traders to discuss the merits of any large changes to the market and balances.

2:00 PM - 5:00 PM
Conduct any interesting analysis I'm considering at the time, answer emails, chat with traders about longer term project they want to consider.

Day 3 - Abnormal Market Events

All Day
On days such as Brexit, election night, OPEC announcements, etc. it is vital to be watching headlines and prices throughout the day to try to determine the actual news, changes to market dynamics, price and movements.

Feel free to ask any follow-up questions.

Comments (16)

3/10/17

Thanks for sharing! Two questions from me:
1- Mind expanding on "Look at the internal oil supply and demand balances."? I often see supply and demand forecasting as part of job descriptions, but how does an analyst create his/her own view of actual balances?
2- You mention open arbs in the first day. In FX markets, arbitrage opportunities get eliminated quickly because of the prevalence of electronic trading. How often do arb opportunities present themselves in physical oil, and how much time do you have to seize the opportunities before various factors (basis changes, transport cost changes, etc.) close the window of opportunity.

Financial Modeling

Best Response
3/10/17
  1. For the most part a lot of the balances will be similar and it is only a few assumptions that will truly differentiate one balance from another. For instance, in the US the major focus for y/y growth in a $45-$55 oil environment is the Permian. Based on decline rates, takeaway capacity, rig counts, etc. will give you different outputs which can move your balance say 0 - 500 kbd. For an international example if you believe there will be increased sanctions with Iran, continued disruptions in Libya, and/or financial difficulties in Venezuela these will change your balance. It's a mix of art and science.
  2. In oil markets the term "arb" is a bit of a misnomer as it just refers to spreads. Arbs can remain open or closed for awhile because an open arb encourages moving oil from oil area to another. So the spread is a clearing mechanism for S/D balances.
3/10/17

To what extent do you analyze the shipping market?

3/11/17

We look at the major dirty (crude) and clean (products) routes to relate to how spreads are moving. And then if we believe there's certain vessels that are important that week we will track those.

3/11/17

Filling spreadsheets. but someone has to do it.
Seems relax.
Cannot be in an analyst in Commodity Trading that I can tell.

3/11/17

So what do you think about that dip below $50/barrel recently? :)

Sounds like the life! @differentialequations12 time to give up on Software Sales dude and crawl back to the womb for which gave birth to your Corporate America existence.

3/13/17

Definitely makes things interesting for the industry, especially as you have E&P CEOs talking at CERA week recently about increasing production in a 50-55 range. The question hinges on OPEC cutting in the 2H 17 and to what extent. With a supposed OPEC floor at 50, where's the new floor?

3/13/17

I don't know of any friend with the "good" engineering jobs.

Most are just working in North Dakota.

3/12/17

Great post, thanks.

Are you at a bank/trading house/oil major?

How do you progress from this role (do you want to trade?) Or are you set on research?

Can you share a few details on your background?

3/13/17

I'll narrow it down to bank/trading house. Most people in a role like this would move to trading or want to move to trading, say 75%-90%. Some people stick around in the role and others move on to industry related positions. Background: have family in commodities that I was lucky enough to have exposure to in college, cold called alumni and became friendly with a couple of people. It's always interesting to me when you're supposed to give a "why this firm/group" in an interview because oftentimes the answer is BS and you just happened into a certain walk of life.

3/12/17

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3/13/17

I am curious as well where you are as one of the other posters asked, bank/ trading house/oil major?

Do you look at the Brent/Dubai spread at all? whats your thoughts on it collapsing currently if you are? Why would any refiner want to purchase a lower quality crude (dubai) at a premium to brent if it is going to cost them more to produce the refined products?

Thanks

3/14/17

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"Well, you know, I was a human being before I became a businessman." -- George Soros

3/18/17
  1. What do you mean by "the arb is open" ? Do you mean that the WTI - Brent spread has widened?
  2. How do you determine if WTI-Brent arb is open?
3/20/17

Can you discuss the importance of the WTI/Brent spread as it relates to U.S. producers and refiners? Thanks in advance.

3/20/17
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