Commodity markets have always been uncertain and have often exhibited extended periods of volatility. Events such as the collapse of Enron and other marketers, the financial crisis, and more recently, BREXIT, have all had massive impact, and yet, after each event, measures have been put in place, both regulatory and in terms of controls, to protect markets, margins and profits. Each tumultuous event has brought learning, innovation and improvements in business processes. The energy industry has also learned from these experiences; adopting better and improved risk controls, systems and tools to predict, protect and profit. Yet, now may be the time to innovate once again to better protect margins amid increasing costs and lower commodity prices.
Energy producers, traders and consumers today face a challenging trading environment with more regulatory oversight, lower prices, increasing costs and almost constant volatility. As a result forward thinking energy companies are already adopting a more closely integrated treasury and trading approach, a potentially overlooked opportunity by many. Typically, trading and treasury are separate areas of business with limited or no integration between them. The traders work to sell commodities at the best price or to profit from trading, while the treasury function with its concern over available cash, navigating future investments and doing so in the right currency and at the right location, has a range of responsibilities, including FX and IR hedging, broader credit management, debt and capital management and more. Usually, the treasury department gets a fixed time view of trading positions to work with and can miss opportunities to protect profits or control costs as a result as these exposures change rapidly. Even large oil and gas majors have experienced the situation where trading has a good month but FX rates moved against them to give an entirely different result. Despite believing that they were hedged, FX markets went against the company leaving it with significantly eroded traded profits.
Read the document online or download it from the CTRM Center Next Generation Integrated Treasury and Trading for Energy and Commodity Companies