Oil and products house of the year: Macquarie Group

Energy Risk Awards 2023: Bank expands its oil and products services, offering vital financing, bespoke hedging and access to illiquid markets

Dan Vizel, Macquarie

Price volatility, inflation, interest rate hikes and increased credit risk made life very challenging for oil producers, refiners and end-consumers during 2022.

Against this difficult backdrop, Macquarie Group further enhanced its oil and products offering, creating innovative financing products and structuring bespoke deals that involved physical offtake, marketing and delivery. Macquarie, winner of Energy Risk’s 2023 Oil and products house of the year award, also expanded into new geographies and products, taking physical financing and marketing of crude into West Africa, and adding bitumen to its product portfolio. Additionally, it increased its energy transition capabilities.

Macquarie’s robust risk management, substantial customer base and financial and physical capabilities – which include taking title of product – enabled it to be active in markets where few others have the depth of expertise.

“Our ability to trade physical and financial commodity markets allows us to tailor specific solutions for our clients,” says David Hochberg, head of Macquarie commodities trading, physical oil. “Given the increased volatility in all asset classes, particularly commodities, our clients are increasingly requesting better product options and services than what is currently offered. These circumstances are where Macquarie truly adds value; to actually solve our clients’ problems with creative solutions.”

In the US, Macquarie has been active in natural gas liquid markets, providing both financial and physical hedging services amid growing demand for physical risk management services. Meanwhile, in Europe, the Middle East and Africa (Emea), airlines remain a big focus for the bank. The sector was particularly active in 2022, benefitting from pent-up post-Covid demand while grappling with a higher oil price environment.

“We traded with more than 30 airlines in the region, becoming one of the main market-makers in jet fuel and gasoil options, and helping structure deals that both cap fuel price exposures while also limiting potential losses on the hedge,” says Hochberg.

Underpinning Macquarie’s ability to do this is its dynamic approach to credit risk management. Macquarie manages counterparty credit risk on an individual as well as sector-specific level, using these frameworks to stress-test worst-case scenarios. In the airline sector, for example, the impact of Covid-19 caused many airlines to breach standard credit models. Macquarie carries out comprehensive monitoring and understanding of each framework and its triggers and has a high level of communication between traders, sales, logistics and credit teams globally.

“Ultimately, this allows Macquarie to maximise its offerings to clients within a level of exposure that we understand and are comfortable with,” says Benjamin Davis, head of Macquarie’s Emea oil sales team. “In the case of airlines, this has allowed us – crucially – to keep credit lines open for our clients when they needed them most, whilst greatly improving the risk profile of the portfolio, shifting it towards stronger credits, shorter tenors and capped exposure trades,” he says. “This underlines our commitment to risk management as well as our interest and passion in positive client outcomes.”

Macquarie’s vital work around credit also extended to other sectors and included inventory monetisation and other working capital financing. In one noteworthy deal, a client requested a working capital facility for expansion into renewable fuels. Macquarie structured a deal that reduced the working capital burden the firm had around purchasing, storing and converting renewable feedstock ahead of selling the renewable products.

“This provided the client the ability to utilisse Macquarie’s balance sheet for improved cash efficiency around their conversion of feed stocks to products sold,” says Dave Duggal, head of North American oil origination.

Meanwhile, 2022 saw Macquarie continuing to develop its energy transition expertise, which now includes risk management tools on vegetable oil, methanol and renewable credits, and physical supply, offtake and logistics services for proposed methanol plants. These are benefitting from the US Inflation Reduction Act and the European Union’s Fuel EU policies.

“The energy transition is bringing the agriculture and energy markets closer together, and as such, Macquarie has combined the expertise of the two teams into one,” says Dan Vizel, head of global oil and agriculture trading. “This has created synergies and efficiencies in developing new products and managing risks around them effectively.”