Trading Our Way To Net Zero
The role of commodity trading in the energy transition
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Despite market disruptions and uncertainties driven by the pandemic, deepening of geopolitical tensions, and imminent radical changes from the energy transition, total gross trading margins in commodities are reaching record levels (see Exhibit 1). 

Exhibit 1: Commodity Trading's Historical Gross Margin
1. Including investor products
2. Including coal
3. Including traditional fossil power, renewable power, pipe gas, LNG, emissions, exotic weather derivatives
4. Including crude, products, and biofuels
Source: Oliver Wyman proprietary data and analysis

Our analysis indicates that more volatility is ahead which should continue to help margins. Further market disruptions will be the result of:

  • Lack of clarity around the transitional energy mix as we move down the road to net zero emissions
  • Consistent underinvestment in both commodities required to support green energy alternatives and fossil fuels as well as other commodities that will become essential in a new low-carbon world, such as feedstock for biofuels and copper production
  • Tightening supply in interconnected commodity markets will lack resilience to deal with even the most simple shocks or increases in demand, never mind the geopolitical tensions that we are seeing currently

This paper examines the impact uncertainties are having on commodity trading in terms of short-term risks and long-term opportunities, and based on that, which trading businesses are most likely to come out on top.