Oil & products house of the year: Macquarie

Energy Risk Awards 2022: Credit expertise and physical presence enable bank to create bespoke hedging and working capital structures

Dave Duggal, Macquarie

“Extensive knowledge and experience are the fundamentals upon which Macquarie’s oil and products business were built,” says David Hochberg, global head of Macquarie Commodities Trading, the firm’s physical oil trading business. “Opportunity and innovation have enabled the business to evolve into what it is today.” Indeed, in the tumultuous market conditions of the past year, Macquarie has deployed its physical trading capabilities and the expertise of its credit team to support oil and products clients in search of hedging and working capital solutions.

Macquarie currently provides risk management products to more than 500 corporate clients across the oil and products markets, including producers, trading houses, refiners and major consumers such as airlines. Its commodity markets and finance (CMF) team also trades millions of barrels of oil and products every year, successfully managing the logistical risk associated with physical oil movements.

Client demand for bespoke solutions has increased over the past year as clients along the oil-supply chain continue to be impacted by the effects of Covid-19 and, more recently, the February 2022 invasion of Ukraine. Oil prices have surged from total collapse in 2020 to pass $100 per barrel by Q2 2022. “In both a low- and high-price environment, credit and capital become constrained and Macquarie’s ability to physically move commodities provides key differentiation and meaningful solutions to major oil traders,” says Dave Duggal, Macquarie’s head of North American oil origination.

One example of an innovative deal completed amid these conditions saw Macquarie execute two term oil hedges alongside physical oil marketing and blending services for an upstream client. To help the client protect its balance sheet from oil price volatility, the CMF team provided a complete solution, incorporating hedging with term physical offtake, a marketing facility and blending services agreements for 100% of the customer’s expected oil volumes in 2022. Macquarie was able to quickly provide a line of credit for hedging due to its analysts’ deep understanding of the physical offtake, which allowed it to create a secure position around the risk of the hedge.

Dan Vizel, Macquarie

As a result of the deal, “the customer has a WTI floor without having to pay cash upfront and maintains the ability to participate in the market should oil prices increase”, explains Duggal. “The structure was designed and sized to allow for the physical oil purchase to act as the collateral to support the hedge programme. Additionally, the customer was also able to benefit from Macquarie’s expert physical marketing platform.”

In addition to the expertise of its internal credit approvals team, Macquarie also uses its physical logistics presence in the market to execute such deals, says Benjamin Davis, head of Macquarie’s Europe, the Middle East and Africa oil sales team. This aspect of its offering came into play recently when Macquarie stepped in to facilitate a prepay cargo for a longstanding client with which the bank has an ongoing hedging relationship. The client had struck a deal they were unable to complete and Macquarie was able to step in quickly and help. “Because Macquarie is one of the only banks with the ability to trade the physical and take title, we were able to pre-pay some of the volumes and provide the necessary cash to help fund capex for this client,” Davis says. “We then marketed the barrels using the physical capabilities of our team in Geneva, so we basically offered the whole service.”

Daniel Vizel, head of global oil trading at Macquarie Group, adds that operating in the market as an owner of inventory, rather than a financier, puts Macquarie in a more secure position. “It allows us to get deeper into these transactions with our clients, understanding their needs,” he continues. “And so, we’ve been able to keep providing these kinds of solutions, even at times of extreme market volatility.”

Demand for more innovative products is likely to increase as global events continue to unfold. In such an environment, Macquarie’s ability to deploy its physical and financial trading capabilities in this way will support the performance and growth of corporates throughout the oil and products space.