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Energy traders have taken action to capitalize on volatility in agricultural and metals markets, according to people familiar with the situation. Vitol and Hartree have hired metal traders, while Gunvor has appointed an experienced agriculture trader, these sources reported.
The Russia-Ukraine conflict has disrupted global supply chains, driving up food prices. Therefore, analysts anticipate high agricultural costs over the coming months and into next year.
Top energy traders are expanding their businesses into other commodities markets, with metals and agriculture becoming hot commodities for some major oil companies. These firms are reinventing themselves to take advantage of an increasing demand for these items as global energy transitions take place.
Energy traders invest in tankers of crude, gasoline, diesel and natural gas as well as power. Furthermore, they engage in financial derivatives trading by purchasing and selling futures and options on these markets along with a range of other commodity products.
For some of the world's largest independent oil trading houses, such as Vitol Group, Gunvor Group and Hartree Partners LP, diversifying into other commodities is a key strategy. These include agricultural commodities and metals with some expanding into China while others expanding into Europe and Asia.
One reason for this trend is that traders have seen strong profits in recent years as oil prices remained near $100 a barrel, where OPEC producer Saudi Arabia wants them. Now these individuals possess cash which they can invest into other commodities which has enabled them to expand their business portfolios and boost margins, according to industry sources.
Another explanation for this trend is the transition of agriculture from an agrarian society to a technology-driven one, creating greater demand for certain commodities like oilseeds and grains. As a result, prices of these goods will likely continue to rise.
The move into other commodities is being propelled by the energy transition, which has increased demand for metals like copper and lithium. These elements are essential in battery cells and other renewable energy technologies, fueling growth in these markets.
As these markets expand, they could potentially cause volatility in the price of oil and other fossil fuels - making this an ideal time for energy trading houses to diversify their operations. According to Andrew Kerr from Opportune City Resources, this volatility should provide them with additional opportunities to trade other commodities.
As governments around the world strive to address economic, social, and environmental challenges, they must also prioritize energy transition. This involves eliminating fossil fuel subsidies, guaranteeing that full costs associated with burning fossil fuels are reflected in their prices, and implementing policy measures which encourage transition-related solutions.
In order to prevent dangerous climate change, the energy transition must accelerate away from fossil fuels and toward lower-emission options. To accomplish this, significant up-front capital investments are needed for renewable power generation and grid improvements.
The energy transition will bring with it both risks and opportunities. One such advantage is a surge in demand for essential minerals needed to power this transition, such as nickel, copper, cobalt, and lithium.
Investors have an opportunity to invest in the infrastructure needed for the energy transition. This includes solar, wind and hydrogen power generation assets as well as battery storage for electric vehicles.
Investors are taking notice of this promising market. They are searching for companies that can deliver superior returns on energy transition investments.
Investors should look into utility companies and oil & gas firms investing in clean energy infrastructure, with the resources and capabilities to facilitate a long-term transition towards low-carbon electricity sources such as renewables, green hydrogen, and sustainable modern bioenergy.
These utilities may also be able to quickly decommission inefficient and highly polluting fossil fuel facilities, helping them reach their net-zero goals more rapidly and orderly.
In the near future, the energy sector will experience massive disruption as coal-fired and other forms of fossil fuel infrastructure is decommissioned or forced out of service. Furthermore, this transition will cause natural gas and coal supply shortages to worsen.
Achieving a successful energy transition will be an extensive and difficult journey. It requires sustained dedication to the goal of keeping global temperatures below 1.5degC above pre-industrial levels, with aggressive efforts made towards reaching this target by 2030. Furthermore, greater focus must be put into closing social and equity gaps while improving access to clean energy for all citizens.
The stock market can be highly volatile, meaning prices may move dramatically up or down due to seasonality, altered demand patterns and fear of the unknown. These forces combine to create this volatility.
Volatility in stock prices is often linked to the performance of a company or sector it belongs to. For instance, cancer drugs that create new and effective treatments will experience greater volatility than ones recalled or involved in legal disputes.
Volatility can also be affected by external events like storms that destroy oil wells or wars that reduce import-export activity for consumer goods. These calamities can have devastating consequences on certain sectors, increasing stock volatility significantly as a result.
Stocks can become volatile due to a variety of reasons, such as the release of a new product, company expansion or the launch of an unpopular political movement. These events also have an effect on investor sentiment which could cause stock prices to surge or crash drastically.
Investors can benefit from a volatile market by buying at the top and selling at the bottom, provided they know what they're doing. This strategy may be especially advantageous if you're an experienced trader who can detect opportunities before they materialize.
Investing in a volatile stock can be risky, however. This is because the volatility makes it more difficult to sustain the value of your investment.
When it comes to analyzing a stock's volatility, traders employ various strategies. Standard deviation, an indicator that shows how far an asset's value differs from its average, is one such measure. They also look at historical volatility - which is calculated based on past performance of a security.
These methods allow investors to determine how much volatility they should expect in the future, so they can select appropriate assets for their portfolios. Furthermore, options allow them to reduce exposure to volatility by hedging their risks.
Volatile markets can be disconcerting, yet they also present energy traders with invaluable opportunities. To take advantage of these changes, energy users must enter contracts that allow them to adjust operations based on short-term market conditions.
Energy traders are adopting an innovative strategy: they utilize the flexibility built-in to their physical assets in order to capture value and profit from volatility. These firms own and operate assets such as storage facilities, transportation networks, power plants and other infrastructure with built-in physical flexibility.
In the energy industry, flexibility can enable asset-backed traders to take advantage of arbitrage opportunities - which refers to profiting from price differentials across locations, time or commodities. For instance, storage assets could be utilized for time arbitrage while transportation assets would enable location arbitrage profits.
To do this, companies must guarantee physical flexibility in their assets and processes by being able to adjust product production, processing or refining schedules according to market prices. The aim of this procedure is to maximize output quality, utilization and turnaround while minimizing costs.
Those that can manage this flexibility will be better prepared to manage the risks associated with high oil-price volatility, which has created an abundance of temporary pricing imperfections in different markets and offers exploitable opportunities.
This approach is also more efficient for companies to maintain margins during times of volatility, since companies can focus on producing products that satisfy customer demand. Unfortunately, this strategy requires significant effort and investment to implement successfully.
Investment can involve dedicated credit, technology, legal and investment resources. Furthermore, it may necessitate a significant expenditure on physical assets which may need upgrading in order to meet increasingly stringent quality standards and regulatory regulations.
Though these strategies may not be suitable for everyone, when done correctly they can present energy players with exciting possibilities to monetize the potential in their assets. Furthermore, these investments offer investors a more stable return than other traditional investments, potentially increasing the value of their portfolio overall.
This marks a monumental shift for the oil industry, as many oil-producing companies and countries have historically shunned trading as it interfered with their primary business objective of becoming reliable suppliers of crude. If they can revamp their trading departments and boost professionalism within their divisions, however, it could become an invaluable source of revenue and value creation.