The gas in our cars, cleaning chemicals in our cabinets, and reusable cups from which we drink our coffee or tea all have ties to the crude oil industry. As feedstock for a wide array of goods, crude oil and crude products are among the most widely traded commodities in the world. The market attracts diverse participants; however, many of the challenges faced are universal.
CommodityPoint’s latest white paper, “Global Oil Markets- Increasing Uncertainty and Risk,” highlights several of these challenges and concludes that now is the time to invest in an advanced energy trading and risk management (ETRM) software solution to combat rising volatility.
This white paper discusses how the political unrest affecting many of the world’s crude-producing regions is having a direct effect on oil supply. Tensions in the Middle East threaten to shut down the busiest port in the region, which could interrupt the delivery of 17MMbbl/day. Should this situation come to fruition, market volatility will be further exacerbated, and those companies that are not properly equipped to manage it will suffer.
While the threat of a continued reduction in crude supply looms, crude demand continues to grow each year. CommodityPoint’s paper suggests the only way to effectively navigate the market fluctuations caused by scenarios such as this is to implement a sophisticated trading solution that can not only capture, manage, and value trades and hedge positions; but that can also model the entirety of the physical operations of market positions. Read the paper now and find out why it’s imperative to have an ETRM solution such as Commodity XL™ that provides an integrated, real-time view of physical and financial exposure alongside operational, credit and regulatory risk exposure.
There have been several recent announcements from Delta Airlines related to jet fuel and oil trading.
According to Reuters, Delta Air Lines Inc. reported a second quarter loss because it took $561 million in charges for fuel hedges. Part of the loss was taken for mark-to-market adjustments on open hedge contracts.
It appears that Delta has chosen not to apply FAS commodity hedge accounting treatment. Many of the news reports called these derivative purchases “bets” when in fact they are hedges that reduce risk.
If Delta used hedge accounting it would match the loss of open fuel derivative contracts against future jet fuel purchases and not show the loss in the current period. Hedge accounting is extremely complex, and an advanced, auditable software system is required to support the adoption of these procedures.
Separately but related to managing fuel cost and risk, Delta announced that it completed its acquisition of the Trainer Refinery in Pennsylvania through its Monroe Energy subsidiary. Delta will move jet fuel from the refinery to its hub airports in the Northeast. Additional refined products such as gasoline and diesel fuels will be traded for jet fuel in other parts of the country. Delta spent about $12 billion on jet fuel in 2011 and expects to serve 80% of its domestic jet fuel needs from the Trainer refinery and related deals.
Delta is the first airline to own refining capacity. It will be interesting to observe if other airlines follow suit and move to vertically integrate their energy supply chains.
Supplying a refinery with crude oil and trading products requires sophisticated energy trading and risk management (ETRM) software. With volatility seemingly increasing daily in the commodity and crude oil markets, it seems prudent for Delta to invest in a hedge accounting and oil trading and risk management platform.
Four years ago Triple Point acquired INSSINC, the leading commodity hedge accounting software solution, and integrated it into its energy trading and risk management (ETRM) software solution. At that time, Triple Point recognized the need for an integrated commodity management platform that seamlessly integrates all key risk areas.
The new volatility reality demands that all industries with exposure to commodities and energy review their current risk systems to ensure they are appropriately protected.