Hey guys, I'm curious if anyone knows about the differences or specifics of trading for a company like Shell, BP, etc. vs an actual trading firm or prop firm. I spent most of last year trying to get an entry level options/futures trading job and wasn't able to find one, however one may have presented itself at a large energy company. I know a number of traders but none who work in this capacity. Does anyone have any insight? Thanks!
That's a very open ended question depending on what type of energy, what type of company, and what type of trading you mean. (what is an actual trading firm?)
A Natural Gas storage operator, verses a Crude Oil Gathering Company, versus a Refiner, versus a Power Utility will be completely different. Even different divisions within the same company (eg Refining vs Trading at an oil major) can be very different. There are energy trading desks out there that take significantly more risk than many prop trading firms, but then there are others that take virtually no risk at all.
As a very broad generalization though I would say that they (energy companies) are very different. Energy companies are in many cases trading around an asset base, or a logistics model that prop traders do not have - that is there edge. As such there trading is very often very fundamentally driven - and often involves trading the underlying physical product in addition to its derivatives. Not surprisingly many energy traders have a background in operations/scheduling/logistics although risk management is also popular.
When people think about trading energy they immediately think of CL and NG, but that is only the tip of the iceberg. Take a look at ICE's product list, or CME/NYMEX/Clearport's product list. There are literally hundreds of other products that have liquid and long dated markets that the average retail trader will never have heard about. There are 100s of different types of crude in the world that all have different values. 100s of different products (gasoline/diesel/Jet etc) that all have different specifications in different parts of the world. In Natural Gas here in the US there are 100s of different delivery locations each with its own products.
Try Googling, Vitol, Trafigura, Glencore, Marc Rich, Mercuria and you'll get an insight into some of the mega-commodity trading companies.
If you have more specific questions ask away or PM me.
I really appreciate the detail in your response to my thread. My situation is this: I've got a contact that is going to get me an interview with a MAJOR energy (known for oil & gas) company. I'm trying to learn as much about Oil & gas trading as possible, in a broad sense. My limited trading knowledge is concentrated in equity and index options. From what I've gathered, traders at these large energy companies can trade a lot differently than at your regular prop firm or what have you, meaning they may have to factor in logistics, geography, etc. I'm just trying to find out as much as I can about what that type of trading is like so I can prepare accordingly over the next 2 weeks and knock this interview out. Sorry for the long winded message. Despite my rambling, if you know of any resources or have any insight on the topic I'd greatly appreciate it, thanks!
The range of possibilities is still enormous.
While there are traders that will just trade prompt month crude, gasoline, heating oil, natural gas etc, that tends to be more of the domain of people who need the liquidity to exit positions quickly.
The large oil companies are going to have positions that are often geographic spreads (eg Brent-WTI and Gasoil-Heating Oil), Product Spreads (eg WTI-Gasoline, WTI-Heating Oil, Brent-Gasoil) and term/time spreads (eg WTI Dec14-Dec15). Many of these positions will be large in size as well.
It's like a giant spider web. For example looking at a simple crude relationship. LLS (a USGC crude) trades as a differential to WTI. WTI in turn trades as spread to Brent.
North Sea and West African crudes trade as a differential to Dated Brent, which in turn trades as a spread to Brent.
Hence if you are a Gulf Coast refiner and are looking at the price difference between say LLS (US) and Bonny Light (Nigerian), two crudes similar in quality, the actual price relationship is being driven by several different components
LLS - WTI / WTI - Brent / Brent -Dated Brent / Dated Brent - Bonny Light
The only part of that which is a liquidily traded futures-futures spread is the WTI-Brent.
A major oil company, or major oil trader, will have somebody focusing on each of those relationships.
They will also though probably have somebody who is trying to make money purely by trading futures.
Also remember that the large physical companies (BP,Exxon,Shell) are trading for Hedge purpose and not pure speculation or profits like a prop firm. You may want to do some research in physical trades as in trading of cargo ships and transportation.
I used to have a client that sold gasoline up and down the east coast and would hedge his sales with me via RBOB. The guy would always tell me he didn't give a shit what the price was trading at as long as he had no exposure to it.
That's rather a wide generalization which is at least partially wrong. Exxon at one extreme do very little trading or hedging. BP and Shell on the other hand have large divisions that do significant amounts of prop trading (BPOI & STASCO).