Independent commodity traders, often viewed as the secretive, but highly lucrative, footloose middlemen of the energy markets, are facing a tough time adjusting to the industry’s new economics. The rise of data transparency has stripped traders of their information advantage, while regulatory pressures over accountability continue to grow. New competition from national oil companies looking to leverage their massive supply-side clout in trading swap deals is also on the rise. Commodity trading margins have fallen by more than 20% from their recent peak in 2015 and could fall by another 15% to less than $30 billion by 2025, according to a recent report by consultants Oliver Wyman. Top trading houses such as Glencore, Vitol, Trafigura, Gunvor and Mercuria have been bulking up with refining, distribution and storage assets for years in order to maintain a trading edge over their rivals. But competition for new downstream assets to enhance core trading earnings has become fierce, further complicating the current asset-backed trading model. More pressingly, the rise of automated, algorithmic trading and reduced arbitrage opportunities have compressed traditional margins. Most of the commodities that generated big bucks for traders in the past are now traded on markets that are transparent and liquid,… continue reading
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Source: CTRM Center