Below details my chat with a friend whom I met at APPEC last year at the Trafigura party when I was a clueless analyst at General Index. He is not Singaporean, so while being near my age he is a young veteran of the phys commods game, having been through the various rotations at Trafi from ops to risk to research - a well-rounded tour. Anyway, my main objective was to understand, from his perspective, what phys commods analyst roles was like and what they do. I cover:
So here are the questions I asked. This was recorded in a noisy Starbucks then manually written out so expect some loss of signal :) I will do chats in quiet places from now.
What is Physical Commodity Trading?
What does your role as a market analyst entail?
The key idea is idea generation. Which is the skill I want to learn. So how do you show it to employers given that you have no experience?
What mix of quant vs qual are these models and ideas? Can you support it quant?
IMO 2020 was a regulation that mandates a cap on sulfur emissions from fuel oil in ships. So this meant refineries would have to blend FO with lower sulfur, or ships can opt to have scrubbers, which remove sulphur oxide gas from exhaust gases, so they can continue to use heavy FO. So it seems that due to alot of regime changes, you can’t really look too far back into the historical data to ‘backtest’ or validate ideas. So it’s really about understanding or how strong your logic is.
What is a Refinery Margins Model? How does it work?
What is a Demand Model?
What is shiptracking?
Let’s say I wanted to train this market analysis skill, I have no working exp. Anything you think I could do? Maybe spam the news and figure out something?
The problem with Big Orrin’s stuff is that alot of data is not available. So I have to find what arguments have the most data then do it.
He mentioned to me he follows refinery stuff on Twitter. So he knows there’s is cargo coming out of this certain point, you know that refinery can only take this, so you know exactly where it is. Or a refinery fire happens here, you know exactly what it produces, where it ships to, what demand or supply will be affected, etc.
He then said once you look at the data enough, you kind of get a sensing of how it works.
So I guess when you get access to data, you can figure out stuff easily.
“You’d be surprised at how many analysts don’t know refinery technicals. Majority of analysts don’t even know the residual desulfurization unit doesn’t just turn FO into LSFO, it gives you diesel and naphtha.”
So my take is that you can give yourself an edge by with strong technical knowledge (this is me speaking).
“Yes”.
Anyway, technicals can be classified into production, processing, storage, transport, distribution, consumption - across all different classes of commodities.
The key takeaways:
And some other stuff, which I don’t want to share due to privacy reasons as mentioned above.