Energy Risk Commodity Rankings: firms provide a lifeline in choppy waters

Winners of the 2021 Energy Risk Commodity Rankings supported clients in unprecedented times to be voted counterparties of choice   

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The dealers and brokers in the league tables of this year’s Energy Risk Commodity Rankings guided their clients through unprecedented challenge and change over the past 12 months. In many cases their actions – from liquidity provision and extending credit lines, to restructuring hedges and providing innovative trade finance solutions – were a lifeline that helped keep their clients afloat.

With different commodity markets facing diverse challenges, trading counterparties and brokers needed a deep and nuanced understanding of their clients’ particular pain points.

For the oil and gas sector, national lockdowns at the start of 2020 caused by Covid-19 created an unprecedented demand shock and huge price volatility. West Texas Intermediate crude Futures, which opened the year at the CME at $63.27 a barrel (bbl), plunged 158% to reach the infamous -$37/bbl on April 20. A month later, the contract had recovered to $32/bbl and rose above $50/bbl at the start of this year.

For many US shale firms contemplating the record low prices at the start of the year, hedges put in place previously were now their most valuable asset and counterparties that could help unlock some of that value by unwinding and restructuring their hedge books were instrumental in keeping the firms afloat. Liquidity provision in the over-the-counter markets for regional crudes was also key. Onyx Commodities, BP, Morgan Stanley and Shell were ranked in the top four places for WTI swap dealers, with the first two also voted highly in domestic crudes. Tradition, Icap and BNP Paribas were the most highly ranked brokers in those categories.    

In Brent swaps, Axpo Group topped the table, while Engie Global Markets and Axpo Group topped the gas rankings for dealers and Tullett Prebon for brokers.  

For traders of agricultural commodities, port closures around the world threw up unprecedented logistical challenges and simply tracking delayed and re-routed goods became difficult. Monitoring exposures in real time was essential, as was understanding new counterparty credit risk. For smaller firms, gaining much-needed credit became harder, so trading counterparties prepared to offer flexibility around credit lines and collateral became highly valued.

In terms of agricultural commodities, the Commodity Rankings survey covers grains and vegetable oils. The leading firms in these categories were Cargill and ADM for dealers and SCB Group on the broking side. 

Base metals also had a roller-coaster ride in 2020 as a halt in manufacturing globally sent prices to multi-year lows by the end of the first quarter. However, this was followed by a very strong rebound in the second half of the year as China came out of lockdown and began importing record amounts of copper and aluminium, sending prices soaring. Firms performing well in the base metals categories of the Commodity Rankings over this volatile period include TD Bank and Marex Spectron. 

Precious metals also had their share of excitement. Spot palladium prices surged to $2,795 an ounce on February 27, 2020 – an all-time high at the time – on the back of the European Union’s more stringent vehicle emissions standards, only to sink to a five-month low a month later. It finished the year up 18% and is now trading at new record highs. Meanwhile, industrials faced physical supply disruptions for precious metals as well as challenges around working capital. Trade finance became very important along with liquidity provision for hedging. UBS topped the precious metals rankings followed by JP Morgan.

Participants in electricity markets also faced huge demand discrepancies over the year due to lockdowns on top of dealing with the daily challenges posed by the increased amount of renewables in the generation mix. Last year for the first time, more electricity was generated in the EU from renewables than from fossil fuels, according to a report by UK think-tank Ember and Germany’s Agora Energiewende. Firms performing well in the electricity tables included Engie Global Markets and Axpo Group.

Engie Global Markets also featured prominently in the EU Emissions market table along with Vertis Environmental Finance, while Element Markets topped the table for US voluntary markets. SCB Group topped all the broker tables for emissions.

How the poll was conducted

The Energy Risk Commodity Rankings survey was live between November 30, 2020 and January 29, 2021 and received valid responses from 534 individuals. The survey asked respondents to vote for their top three dealers and brokers in any market in which they had been active over the previous year.

The rankings poll is designed to reflect market participants’ perception of a dealer or broker based on the overall quality of service they offer their clients. It is not intended to reflect volumes traded in any market. Instead, respondents vote according to a range of criteria including reliability, pricing, liquidity provision and speed of execution.

The rankings are also not designed to present the views of a representative share of the commodity trading community, since the poll is open to any market participants, and the results could be influenced by the efforts of dealers and brokers to canvass their clients for votes.

However, the Energy Risk team makes every effort to ensure invalid votes are excluded from the final results. This includes instances where the same IP address is used to cast multiple votes, when groups of employees from the same desk vote for the same firm, or when one voter chooses the same firm indiscriminately throughout the poll.

Voters are also excluded if they do not trade in the market in which they have cast a vote. In addition, categories that do not attract enough votes are excluded from the final results.

The methodology

In order to create the final list of rankings, Energy Risk aggregates the results, weighting them by awarding three points for first-place entrants, two points for second place and one point for third. The top firms in each market are then listed according to the percentage of votes they have accrued, with the winners in each category based on the total percentage of votes per firm. The overall rankings (Best overall dealer and Best overall broker) are calculated by aggregating the votes cast in the individual categories. Following closure of the poll, the results are subject to an internal review process, which can result in categories being dropped or aggregated if they do not have enough votes. The outcome of the review is final.

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