Oil and products house of the year: Macquarie Group

Energy Risk Awards 2024: Bank’s physical footprint supports its innovative working capital transactions

Dave Duggal, Macquarie

In the recent high interest rate, high energy price environment, commodity market participants have needed more bespoke working capital solutions. The need has been heightened by global supply chain disruptions that have caused inventory to sit in tanks or remain in transit for longer periods of time than expected.

As an active player in financial and physical crude markets globally – as well as in physical refined products markets, including gasoline, diesel, jet and fuel oil – Macquarie Group’s Commodities and Global Markets business has been able to provide its clients with bespoke products that address their working capital challenges.

In addition to its blending and marketing capabilities, Macquarie provides clients with physical supply and offtake, and financial risk management solutions. Its physical footprint plays a crucial role in this, underpinning its ability to manage counterparty, operational and market risk.

Aarnoud van Weelderen, Macquarie

“Given that we transact, at times, approximately 2 million barrels of physical oil, liquids and refined products globally each day, we have the physical and financial trading infrastructure, market knowledge and expertise to design bespoke solutions for our clients,” says Aarnoud van Weelderen, head of physical oil business development, Americas, at Macquarie.

Thanks to its large physical footprint, Macquarie’s oil and products team has been able to provide a range of working capital solutions to support clients navigating the commodities markets over the past 18 months. These solutions are often focused on financing inventory in transit or in tanks “where the current supply chains are lengthy”, says Dave Duggal, head of energy corporate sales, North America, at Macquarie.

For example, the firm recently executed one of the first inventory financing transactions for a renewable diesel provider. “This included various vegetable oil feeds, diesel fuel and environmental attributes associated with the plant,” says Duggal.

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It also involved renewable credits. The process included managing physical and financial risks around products where there was little to no liquidity in the forward curve.

“We mitigated these risks by studying and trading the supply chains of vegetable oils and renewable credits,” says Duggal.

In another recent transaction, Macquarie assisted a client in evaluating risks associated with an acquisition of a renewable credit issued under the European Union Emissions Trading System. Again, Macquarie used its physical trading capabilities to provide the client with a physical hedge against its exposure, which created a balance-sheet-efficient risk mitigation solution.

In another example, Macquarie embedded a working capital facility into an offshore physical oil flow transaction. The risks involved – credit, market and operational risk – were mitigated via Macquarie’s physical supply chains, in addition to its crude blending activities and credit risk mitigation products.

Ben Davis, Macquarie

“Our approach to [managing] risk for these transactions broadly falls into three main categories: counterparty credit risk, market risk and operational risk,” explains Ben Davis, Macquarie’s head of oil sales for Europe, the Middle East and Africa. Risk appetite and limits are set independently by Macquarie’s risk management division, with the business owning the risk and managing it via the sales and trading teams.

And Macquarie’s physical platform underpins its ability to manage these risks and deliver much-needed solutions to its customers – particularly amid the intense geopolitical and global economic pressures of recent years.

“Our physical platform allows us to provide bespoke risk management products for our clients in markets that have no liquidity,” says Chris Cusack, head of energy and agriculture sales, Asia, at Macquarie.

“The ability to take and receive delivery of, store and transport these products gives us the knowledge and confidence to provide them financially to our clients, since we can mitigate risk in the physical markets.”