3 Trends Shaping the EMEA Liquid Fuels Trading Market in 2024

Hedge fund activity continues to impact and disrupt the market which has, through the course of this year’s bonus round, led to a much increased focus on retention strategies. As we pass the halfway point of the year, there are clear trends that have been shaping the Liquid Fuels Trading market – and look set to do so throughout the second half of 2024.

Through Proco Group’s partnerships with majors, international commodity trading merchants, hedge funds, investment banks and private equity firms, our dedicated Liquid Fuels team is fully immersed in the market. As a result, our team have a unique perspective on organisational priorities, trends, and market moves which enables us to inform our clients decision making and hiring strategies.

In this article James Thompson, who leads the EMEA Liquid Fuels practice as part of Proco Group’s Commodities team, shares three key trends that continue to shape the market in 2024.

1. Diversifying Multi-Strategy Hedge Funds

Throughout 2023, there were a large number of dislocations across the oil market. The reason for this was that there was a lot of volatility throughout the year and there has been an increase in the variety of oil liquid market participants. This was largely dominated by multi-strategy hedge funds that were diversifying and going into commodities.

What has become clear is that some of these hedge funds have looked for a quick win, as several have already made headcount cuts to traders in early 2024 due to them not having generated the return on investment they had, perhaps naively, envisaged.

By contrast, other hedge funds have taken advantage of the downturn and have shown a longer-term commitment to commodities, doubling-down and making further investments, with some even entering into the physical commodity markets.

2. Increased Focus on Asset-Backed Trading

Majors and NOCs are sophisticating their oil trading platforms in order to become more competitive – most notably, through an increase in the use of quantitative analytics, with programming skills being essential for all recent analytics hires in a several market leaders. Other companies have completely redesigned their compensation schemes in a bid to stay relevant.

The focus for this year’s bonus round was very much on retention, and not just through paying more compensation. In some instances, we have seen companies lower seat costs and increase company-standard PnL splits in a bid to fill high-profile seats, whilst other firms (multiple majors) have set new strategies geared towards imitating their higher paying trading house peers.

Almost all of the NOCs delayed bonuses this year by around 2 months, with some overpaying the most at risk, at the expense of upsetting those less well thought of. Other companies issued bigger bonuses despite profits being down on last year – again, in an effort to minimise losses and increase loyalty.

During this time, multiple leading trading houses have continued to purchase assets to reduce their exposure to price volatility and further enhance their traders’ ability to generate PnL. These asset-backed trading seats are currently the highest in demand, particularly against the backdrop of the funds losing their appeal.

3. Amplified Derivative Trading

Commodity trading houses have been amplifying their derivatives businesses as a result of the increased volatility, and we have seen the majority of expansion and backfilling activity in refined products. Light ends and gasoline have been the biggest focus for many, partly due to the skillsets required to trade arbs and cracks being the most sought after by the hedge funds.

Aggressive hiring tactics and the use of significant sign-on bonuses from the multi-strategy hedge funds have also caused paper traders to question just how ‘competitive’ their compensation packages are.

This has had far-reaching consequences, notably:

• Top paper traders being extracted from some of the most (previously) secure seats, exposing a neglect of succession planning and key-man risk.
• Hybrid physical/paper traders starting to show a bias towards exploring pure paper trading opportunities.

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As 2024 progresses, it is clear that the Liquid Fuels market is in the middle of an evolution – driven both by hedge funds and traders. As competition for top talent continues to increase, we anticipate an ongoing focus on the re-prioritisation of compensation and retention strategies to both retain existing employees and attract new ones.

To hear more or to discuss your hiring/retention strategies, please contact James Thompson.

E: james.thompson@weareprocogroup.com

T: +44 20 7213 9070