The only constant is change echoes an astute observation by the Greek philosopher, Heraclitus, some 2,500 years ago. Those of us who are engaged in the world of commodities are continually reminded of the accuracy of his observation, particularly recently, as commodity prices collapsed led by crude oil. In fact, our industry is continually impacted by changes in the regulatory environment, supply/demand balance, global economic environment, technology developments, political intervention and more.
Recently, BP noted in its annual Energy Outlook1, “Today’s turbulence is a return to business-as-usual. Continuous change is the norm in our industry. The energy mix changes. The balance of demand shifts. New sources of energy emerge, such as shale gas, tight oil, ultra-deepwater oil or renewables. Economies expand and contract. Energy production and consumption are affected by disruptions, from wars to extreme weather. New policies are created to address climate change or bolster energy security.“
Change is the very lifeblood of the commodity trading world, creating opportunities for profit for those who are swift and responsive enough to act. Good traders make money in up or downwards moving markets, provided they are armed with up-to-the-minute data and the analytical tools needed to identify, analyze and manage their trading decisions. However, depending on market direction, other market participants might be caught in a more problematic situation and experience cash flow and/or profitability issues should price movements undermine their naturally long (producers) or short (consumers) positions. Nonetheless, if the company has the right tools at its disposal to track up-to-the-minute changes, and properly and effectively manage its exposure to those changes, then value can be protected and in some situations, profits might be made.
Read the document online or download it from the CTRM Center Value Study: Investing in ETRM / CTRM in Turbulent Times