Risk and Energy Risk commodity rankings 2012: energy

In a roller-coaster year for many energy markets, Morgan Stanley seized top spot in this year’s rankings from its traditional rival, Goldman Sachs. By Alexander Osipovich, with additional reporting by Gillian Carr and Jay Maroo

Jonathan Whitehead

Turbulence in both the physical and financial worlds spilled over into energy markets in 2011. The Arab Spring saw Brent crude soar to more than $126 a barrel in April, but sovereign debt worries on both sides of the Atlantic dragged that back to around $101 by October. Meanwhile, a boom in unconventional oil and gas supplies in North America caused huge dislocations between US and European markets. Traders spent much of the year grappling with this volatility, while new regulations – notably the position limits agreed by the US Commodity Futures Trading Commission in October and the so-called swaps push-out requirement that is also part of the Dodd-Frank Act – threatened to reshape the business of commodities trading (see pages 45–47).

Against this backdrop, Morgan Stanley was voted top overall energy dealer in the annual Risk and Energy Risk commodity rankings, largely on the strength of its oil and refined products business, where it remains a potent physical player. Goldman Sachs, the champion for the past two years, took second place – while the bank performed strongly in a variety of areas, including oil, natural gas and index products, it faced stiff competition in categories such as US gasoline and structured hedging for corporate customers, which saw it slip back in the overall rankings.

Some of its rivals say Goldman’s traditional strength in trading became a weakness last year as volatility increased and incoming bank capital and Dodd-Frank Act rules threatened to undermine that business.

Greg Agran, global co-head of commodities trading at Goldman, denies that. “This is obviously a period of change in the regulatory environment. What the financial services business is going through is definitely forcing us to re-evaluate the way we run our businesses in some ways. But overall, I think this was a pretty interesting and opportunistic year for the commodities business. I think the asset class as a whole is becoming a bit more of a focal point for investor flows globally. We’re still bullish about the opportunities in the space,” he says.

Beyond the top two, the major players maintained their rankings from 2011. Deutsche Bank, which has been building up its commodities business in recent years, took third place, reporting healthy trading profits despite the volatility. Société Générale Corporate & Investment Banking (SG CIB) finished fourth overall, despite dollar funding constraints that forced it to close its US power business less than a year after acquiring it from RBS Sempra Commodities (Risk January 2012, page 8).

I'm not treating this business like a pure trading business, but the discipline around managing risk is the same - when things go haywire, you don't have time to think

“The dollar liquidity issue SG has been facing forced it to take some very tough decisions across the board,” says Jonathan Whitehead, newly appointed global head of commodities at SG CIB.

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Risk and Energy Risk commodity rankings 2012: energy

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