Physical Trading - Energy Commodity Preferences

globalmacro's picture
Rank: Orangutan | 336

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?

Comments (32)

Apr 3, 2018

LNG over here.

Personally sticking to deal origination until the market gets more liquid and some direction starts to define itself in terms of global market dynamics and relationships. As that occurs I may decide to push for a transition into trading, either optimizing an origination book or spec.

Apr 3, 2018

Everyone seems to agree nat gas is soon to pass up oil in terms of volume %. But, I constantly hear that NGLs is the place to be

Apr 3, 2018

Nat gas basis is good times.

Crude basis and diffs starting to get some financial volume.

Basis is where its at...

Apr 4, 2018

What is the basis in Nat Gas/Crude? Is this like trading basis in ags or premiums in metals?

Best Response
Apr 4, 2018

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...

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Apr 4, 2018

Yes, it is the exact same thing.

What physical trading doesn't revolve around trading basis is the real question here.

    • 1
Apr 3, 2018

Residuals and fuel oil. I'd aim to get in a good resid seat right around 2020 if I were you

Apr 5, 2018

Fuel oil? Really? Even with the new environmental regs coming online soon? Ships are either going to have to switch to more expensive, cleaner, fuel or pay out the ass for scrubbers.

Apr 6, 2018

I think especially due to the environmental regulations. In my experience the higher the degree of complexity the more space there is for a traders to add value.

Apr 3, 2018

I will repost something I posted at the beginning of the year (with a few edits).

NGL's are predicted to see the most growth over the coming years.

There have been billions of dollars invested in steam crackers and petchem facilities throughout the US. These facilities are going to need NGL's to feed them and then on the other side of that they are getting built for a reason - strong demand growth. As this demand continues to rise and infrastructure is being built out there is most likely going to be quite a bit of volatility in the market due to lack of storage in some areas, abundant supply in others, pipeline constraints, etc. Immature markets tend to be more volatile than mature ones which gives rise to many more trading/arb opportunities.

In reality though, get a job at any shop that will take you and make the best of the desk you end up on because finding a seat anywhere is hard enough. Once you get in you will gain a better idea of where you want to eventually end up at some point and you can start shooting for it then.

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Apr 5, 2018

I work at a large integrated O&G company. I initially thought I would go into those marketing/supply/trading type roles. The opportunities didn't materialize during the market downturn and I moved out of the trading environment into other commercial roles (not quite BD but close enough for this discussion)

Long story short, the marketing/supply opportunities are coming up again and I would have a shot at landing a crude role internally (ie refinery supply) sometime next year as I've positioned myself for that to be my next developmental role. But I may also have an NGL opportunity in the next few weeks at another firm (midstream but fairly strong footprint in the NGL space). So there are multiple angles to consider as I debate where to put my focus over the next year or so. It feels like it will become a defining decision as the career paths seem to diverge fairly significantly.

Thoughts? Is it as simple as going with 'bird in hand' opportunities?

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Apr 7, 2018

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.

Apr 9, 2018
index:

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.

Could you explain a bit more about why traders can add value in some commodities but in others (and why you need a good base of assets in these)?

Jun 26, 2018

I don't disagree with you, but I think that is generally true for most physical commodities. In the physical oil space, most players are fairly sophisticated, but their sophistication is on a spectrum where some have better assets and regional exposure to gain better insights. The business model can be an important factor as well since some shops are more risk averse and others are more speculative.

Jul 22, 2018
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