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

Comments (54)

Jan 5, 2013

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.

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Nov 7, 2013

zeropower - what do you mean by "arbs" above ?

Jan 8, 2013

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.

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Jan 30, 2013

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.

Jan 31, 2013

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.

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Jan 31, 2013

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.

Jan 31, 2013

^ 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.

Jan 31, 2013

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.

Jan 31, 2013

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 ?

Jan 31, 2013
TheSquale:

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.

Jan 31, 2013
TheSquale:

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 ?

Not at all, it just has to do with the size of the markets. Physical crude is a far, far larger market than grain in terms of volume. Margins are higher in grain and especially softs but that can't compensate for the disparity in volumes. Furthermore, the margins a place like Cargill or ADM are getting don't all accrue to the trader and have more to do with their assets. Running an asset-light model like Vitol which goes for huge volume and razor-thin margins would barely be sustainable in markets other than crude and products.

Jan 31, 2013

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.

Jan 31, 2013
TheSquale:

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.

Not the case on the physical side particularly for benchmark crudes where only supermajors and Vitol/Glencore/Trafi/Gunvor/Mercuria have a shot. The paper market is so broad however that the increased number of participants doesn't necessarily hurt compensation. But it does make it hard to perform consistently (see Pierre Andurand for instance).

Jan 31, 2013

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.

Feb 16, 2014
marcellus_wallace:

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.

Anybody remember where this post is ? Looks like an interesting read

Feb 23, 2013

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....

Nov 8, 2013

Gas or Power in US

Nov 9, 2013

Can't believe you are critically contemplating which one to go into,oil hands down,stupid.

Best

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Nov 10, 2013

Oh yeah? Can you explain why?

Feb 15, 2014

Power fa shoooo

Feb 16, 2014

//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.

Feb 17, 2014

Thank-you for the links !

Jun 26, 2015

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.

Jun 26, 2015

Deleted

Jun 26, 2015

Deleted (sorry, couldn't find the Edit tab for the original post)

Jun 26, 2015

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.

Jun 26, 2015

Any more answers? Interview's coming up super soon

Jun 26, 2015

PM me

Jun 26, 2015

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.

Jun 26, 2015

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.

Jun 26, 2015

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.

Jun 26, 2015
sb842:

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).

Jun 26, 2015

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.

Jun 26, 2015
marcellus_wallace:

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

Jun 26, 2015
Jun 26, 2015
JamesHetfield:

http://www.zerohedge.com/news/guest-post-energy-in...

NICE

+1 when I have them again...

Jun 26, 2015

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?

Jun 26, 2015

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.

Jun 26, 2015

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.

Jun 26, 2015

"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.

Jun 26, 2015

all of the above

Jun 26, 2015

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.

Jun 26, 2015

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

Jun 26, 2015

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-arno...
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-...
People will always need power so there will almost always be a need for power traders.

Jun 26, 2015
low_key:

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-arno...
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-...
People will always need power so there will almost always be a need for power traders.

Damn, he's going to be pissed as NG prices start to retrace.

Jun 26, 2015
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Jul 14, 2018