Asset-backed trading is becoming commonplace in the oil industry as companies up and down the supply chain bring capabilities in-house, delegates heard at the Argus Global Crude Summit Americas in Houston, Texas, today.
"Traditionally, long term hedging was popular, and it still is, but in general we've seen a move towards the front end of the curve," said CME Group's managing director and global head of energy and environmental products Peter Keavey.
"The risks are really in the prompt," said Keavy. "We're seeing a lot of hedging in the short term [and] that also is reflective of asset-based optimization."
HC Group managing partner Paul Chapman has also noticed a continued shift in trading by banks, which either exited or scaled down operations in 2014 and 2015, to those directly in the industry.
"I would argue that pretty much every single business around the world — producer, miner, refiner, retailer of fuels and major — is on some spectrum of developing some asset trading," said Chapman. "And it's driven by a need to capture more margin."
Changing trade flows have naturally had a bearing on who becomes more involved in individual markets.
"Over the past five years, European players have more and more exposure to US molecules, whether it be crude oil or natural gas," said Keavey, which has driven the growth of trade of WTI, RBOB, gasoline, and heating oil in international markets.
Changing energy policy, and policies to reach other political objectives, have a tendency to shape energy flows, whether they are intended or not, the speakers said. The Russian-Ukraine conflict is a prime example, and there are clear signs that US president Donald Trump's second term in office will do the same.
"As this world gets more shaped by trade wars and there's more and more government intervention, that itself starts to break down some of the fundamentals of how some of these markets work," said Chapman.
Keavey expects Canadian crude to continue to flow even under a Canada-US trade war, but "the question is, what disruption happens to the pricing?"
