Commodity trading’s vital role during uncertain times

Additional liquidity and risk management products are required as a result of the surge of new players brought in by the commodities markets’ explosive growth, including banks, hedge funds, tech-focused trading companies, and mining and processing companies. This, in our opinion, is a good thing for a commodity trader. Vibrant markets like these can boost value pools and aid in the energy transition by attracting investments in cutting-edge goods and technologies. There may be wider advantages to doing this in terms of achieving global climate objectives and creating and expanding a cleaner, greener future.

Oil and things made from it

Development in commodity trading: Although they still represent the biggest value pool, oil and products derived from it saw a decline in profitability in 2023. More physical volatility was experienced in 2023, especially as a result of trade flow reorders following the Russian invasion of the Ukrainian nation and the Yemeni Houthi missile attacks in the Red Sea, even though there was greater flat-price volatility in 2022 compared to 2023. WTI was also added to the Brent assessment at the conclusion of 2022 and the start of 2023. The freight market continued to be volatile and ship utilization increased. Ultimately, Urals oil was sent to India prior to being returned to Europe as products.

Outlook for competition: The 2023 McKinsey Global Energy Perspective projects that the overall demand for oil will rise for the majority of this decade before declining after 2030. Furthermore, by 2050, the oil demand is expected to have decreased by almost 50% under the Achieved Commitments scenario. Until then, as more and more big players start trading oil and products derived from it, competition is probably going to get fiercer. As an illustration, national oil  firms and legacy oil sellers are already increasing their trading capacity and relying on their substantial balance sheets in order to secure their portion of the value pool. Subscale intermediate players may also be in danger of “shrinking” as a result of integrated players’ competition and limitations on working and risk capital.

Both gas and power

Development: The Commodity Trading Bahrain value accumulate for gas and electricity grew in 2023 overall. Though there has been some recovery of losses from 2022, when countries had to purchase gas on constrained short-term markets due to interrupted gas deliveries from Russia, power and gas volatility in Europe continues to be above average (compared with 2017–).

Competition outlook: More competition may be expected in markets. The trading capabilities of utilities and renewable energy companies could be expanded, and tech-focused trading companies that were once start-ups could expand their operations by scaling up and reinvesting their profits. In addition, banks and hedge funds may be drawn to expanding value pools, and major trading firms that specialize in metals or oil and gas may boost their investments in power. There will probably be new opportunities in gas and power (but primarily in power) related to three topics: new assets, data-driven trading, and entering new markets.

Breaking into new markets: Despite the fact that gas and power trading markets are still in their infancy, several industry participants are utilizing synergies to expand into new markets by utilizing their current capabilities. For example, after entering the US power market, European firms are now attempting to enter the reformed markets of China, Japan, and India.

Data-based trading: The energy industry has seen a surge in new players due to a rapidly shifting market environment and easier accessibility to market data. Many of these newcomers are tech-savvy and passionate about data analysis. Many members of the latest batch of digital natives are looking to take advantage of new digital opportunities, which could accelerate this trend even more. In response, gas and power exchanges are changing short-term markets to enable more automated trades. This, when combined with technological advancements or analysis of markets, can be used to convert data into trade communication more rapidly and accurately.

New Resources: Investments in new grid infrastructure and technologies are necessary due to shifting energy markets. Battery energy storage system (BESS) investments are already increasing quickly; in 2022, over $5 billion was invested, and by 2030, it is predicted that this amount could reach $150 billion. Furthermore, there may be chances for new asset optimization due to the limitations associated with the power grid and the connection to other commodities traded by any Commodity trader in South Africa, like hydrogen and its derivatives.