All Flashcards
(13 cards)
Explain transformation in time, give an example
Definition:
Exploiting pricing inefficiencies over time.
Key Points:
Firms use midstream assets (e.g., storage) to adjust supply:
Store during excess supply, release during high demand.
Commodities have inelastic supply; production doesn’t adjust quickly.
Market Terms:
Contango: Futures market > spot price.
Backwardation: Futures market < spot price.
Example:
Trafigura leased VLCCs to store oil during depressed prices, stabilizing markets and profiting from gradual supply increases.
Explain transformations in form, give an example
Definition: Blending or processing to meet delivery standards.
Example:
Blending lower-quality copper with higher quality to meet delivery standards.
Explain transformations in space
Definition: Exploiting price inefficiencies based on location.
Nuance: Rarely the sole form of value addition; delivery standards vary by destination.
Example:
Balkanization of US states in pricing.
Copper concentrates require arsenic content <0.5% for China.
Example Process:
Purchase and transport commodity where combined costs are lower than the buyer’s price.
Main Oil Majors
BP, Chevron, ExxonMobil, Shell, TotalEnergies.
Main Mining Majors
BHP Billiton, Glencore, Rio Tinto.
How are prices referenced for Crude, energy and metals?
Energy and Metals: Based on Platts and Argus reports.
Crude Oil Benchmarks: Western Texas, Brent, Dubai.
Explain how hedging a commodity trading transaction works
1st) Agree to buy £1m worth of oil from supplier in 3 weeks time at spot price
2nd) Find a buyer for the oil who agree on purchasing oil at 150 basis points above spot 3 months from now
3rd) In futures market, open long position of £1m, effectively agreeing to buy barrels at a future date…..this way if the price of oilk rises between now and purchase day, they have made profit on the long to offset losses on original purchase price.
4th) Upon receiving the cargo, the firm will then enter a short for the equivalent amount that they will close on the day of sale. As a result, if prices fall dramatically, and the physical sale is made at a loss, firms will make profit from their speculative short position. Removing flat price risk.
Is there any risk leftover from the transaction?
Yes, there exists basis risk as commodity price does not follow underlying hedgin instrument exactly
Tell me about recent happenings in the oil market
Well-supplied outlook for 2025 due to:
OPEC+ unwinding production cuts.
Reduced Chinese demand (6th monthly contraction in September).
Resumed Libyan crude output.
IEA forecasts sub-1 mb/d consumption growth due to:
Post-pandemic demand normalization.
Accelerated clean energy adoption.
Name your personal experience with Python
using LIbraries like Pandas to clean and reprocess data: Missing values, Converting column formats etc
And libraries like MatPlotLib and Seahorse to construct basic visuals such as:
Sales overtime and Heatmaps for missing sales.
First experimenting on Kaggle and since on Jupyter and Anaconda
Talk me through your FX experience
Retail trading -> Supply and Demand -> overtime began to understand that YoY any edge gained from click and point trading was slowly being eradicated by algorithmic models ->
I spent some time learning MQL5 to build algos for the MT5 platform -> I also learned that algorithmic strategies ran by institutions trade primarily from the orderbook
I was constructing models that would exploit pricing inefficiencies between correlated assets, primarily currencies due to their low spread and liquidity, making them tradable with a small amount of capital on lower time frames.
Who were the founders of Mercuria?
Marco Dunand and Daniel Jaeggi
News on LNG market
Japan: Launching first liquid CO2 transport (Nov 2024).
2025 Outlook:
Potential LNG spot price increases:
Tight global supply due to liquefaction project delays (Golden Pass LNG, Energia Costa Azul).
Increased European buying (end of Russian piped gas).
