Oil and products house of the year: Macquarie Group

Demand for oil hedging products has risen sharply this year on the back of soaring energy prices and spiralling inflation.

But such demand is not confined to crude; it also embraces other products linked to oil, such as plastics and petrochemicals. These are products that tend not to have a particularly liquid hedging market behind them, which means that risk-managing them can be a challenge.

Macquarie Group has risen to this challenge with an alacrity that has clearly been appreciated by clients.

Daniel Vizel, Macquarie Group

“Over the course of the past 12 months, we’ve been able to evolve and keep offering risk management services for oil-derived products, in line with clients’ hedging needs,” says Daniel Vizel, head of global oil and commodity global markets, Asia, based in Singapore.

Vizel adds that hedging for new products linked to oil – many of which are at the less liquid end of the spectrum – are being introduced all the time, with more planned for the future.

“This is definitely a growth area for us at the moment,” he says.

While this is a global trend, it has been particularly significant in Asia, where many of the producers and consumers of such products are located.

Risk-managing some of the less liquid products has become even more difficult as volatility has picked up, but Macquarie’s deep in-house expertise, combined with a long-standing commitment to customers, has helped see the Australian house through the difficult times.

“I think almost all financial institutions will have faced a change in their value-at-risk calculations, which feeds into discussions about what their risk appetite is. At the same time, exchanges have been increasing margins, which creates challenges for traders in terms of managing their funding lines and capital requirements,” says Vizel. “Risk is at the centre of everything we do, and we remain committed to being there for our clients.”

He says that being able to integrate physical and financial transactions within a single platform has also been very important for clients this year: “Our competitive advantage is being able to look beyond the underlying transaction – be it physical commodities or a financial transaction – and embed price risk management into a structure the client requires.”

 

Agricultural crossover

One area of the market that has yielded fresh opportunities this year, is the crossover between oil and agricultural products. This has largely been driven by the energy transition process taking place across the industry, as many firms look at ways of reducing their carbon footprint.

“The sugar-based ethanol story has been around for some time, but it’s now expanding into a lot of other markets, such as bean, corn and palm oil, and tallow. These are products that weren’t so linked to the energy markets previously,” says Vizel.

This has meant Macquarie has had to find new ways to service clients that are making this leap from trading oil products to suddenly also trading in the agricultural market, and vice versa.

“This has created a merger between some of the risk management tools that we use in agriculture and some of those we use for oil products,” says Vizel.

The depth and breadth of the Macquarie franchise mean that the institution can effectively service both sides of this divide.

“Our agricultural business has been around even longer than our oil business,” he says. “The key this year has been bringing these two together to ensure we provide our clients with the holistic offering they need.”

 

Other trends

Other key trends for Macquarie this year have included increased demand for hedging liquified petroleum and natural gases, principally among Asian clients. This has typically been crossing flows into these products, with flows coming back into oil.

Renewed interest in aviation fuel hedging has also been an important driver of activity. This has mostly been seen among clients in Europe and Asia, with clients in the US undertaking fairly limited hedging of aviation fuel to date.

Throughout all of this, the most important thing has been having the right industry knowledge in place to help guide clients through evolving industry conditions, says Vizel. “We have some very talented people with great expertise. These aren’t just derivatives or risk management experts, they’re industry experts who really understand what’s going on in the market.”

Vizel adds that this gives the Australian bank the confidence to not only enter new markets, but also to have “sensible conversations” with the clients about what’s going on in the market, and how they should be managing the price risk.

“It’s having that expertise, that industry knowledge and those connections with the clients that have been really key for developing our business this year,” he says.

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