The changing shape of commodity trading!

I began trading in 2001 and pulled the trigger for the last time in Jan 2017, before retiring from front line trading and beginning a new chapter .  During that time I had used 3 main strategies to make money, each of them fairly simple, matching my skill set with the team I was working with and in conjunction with the tools and information we had available.

I always felt I had an edge over the market and would back myself to make money and did every year except the last one.

·       Gas – trading the front aggressively and in size, often taking to delivery.  We had an excellent analyst, good physical and weather information and I had lots of confidence in our ability to get balances right.   

·       Coal – I ran a highly successful relative value strategy, that once again leveraged my aggressive trading style.  Being very active in the physical market also provided plenty of information to allow me to run a successful prop book as I came to terms with the coal market and its many nuonces.

·       Gas – having moved from a physical shop to a financial one, I lost the front end edge I had enjoyed previously.  The costs associated with delivering gas through a third party were also really prohibitive and so it was time to join the big boys and make money on the curve.  I adapted my style to one that has been highly successful for many across the market for a lot of years.  Based on our fundamentals, I began to use a combination of flat price and time spreads to build long term positions that I was very confident would deliver the results in the end, even if some speed bumps and pain would be felt along the way.

My last style has probably been the most adopted method of making money across the market since its inception and has served lots of traders very well indeed.  Trading houses, funds and utilities alike have encouraged this type of risk taking, with some notable firms insisting on a max VAR approach.  Massive losses have often been tolerated and position sizes increased when things haven’t gone to plan (it was always alright in the end).

Unfortunately, in 2022 Putrid and his invasion changed everything and as I type there is very little indication that we will be going back to the good old days, even if a prolonged Iran cris leads to a spicy 2026.  The fact that most traders made eye watering amounts of money on the way up and then pretty impressive amounts on the way down in 22 and 23 did a good job of masking the new world for a couple of years.   The second coming of Trump, geopolitics kicking off everywhere and now the latest Middle East crisis has really let the cat out of the bag and many traders are scratching their heads about what the hell they should do!

The stark reality is that TTF is now at the mercy of Trump, Iran, tweets, Israel, Russia, China, LNG, trade wars, algo’s, inflation, recession and far more people wanting a piece of the pie.   Working out the fundamentals to an accuracy of pre 22 is impossible and as the last few weeks have shown, even the most bullish events can get heavily sold into.  Timing has become so important and recently the Ras Laffan bombing was a great example of how unbelievably difficult it is.  The paper market was long before the physical constraints really kicked in and with China turning their backs completely on expensive LNG, the market plummeted into the worst crisis we have possibly ever seen.   

Spreads are also not behaving like they have, should or how people want them to and Summer Vs Winter has repeatedly blown people to bits for 3 years on the trot. 

The market has changed and for traders who don’t try and adjust and adapt their own style and process it promises to be a long and painful road ahead.  Some will walk away, some will be pushed, but I managed to adapt twice during my career and I genuinely found that each time presented a new challenge, fresh purpose and an increased enjoyment of my trading and career.