Gasoline markets are some of the most unpredictable and complex in the commodity space. Market volatility, changing regulation and increasing competition mean every cent counts. This creates both challenges and opportunities for gasoline traders.
Because the majority of gasoline contracts are traded in opaque OTC energy markets, accessing pricing information means having to shop around for broker quotes to get a view of the market. Gasoline traders get around 5,000 broker quotes a day coming in from voice, chat and messenger apps – still, separating the best numbers from the rest is a key challenge.
“We are overloaded with quotes across chat, voice and messenger throughout the trading day, but not all of the noise is useful.” – Gasoline Trader at Oil Major
Traders still have to manually process this firehose of quotes in a spreadsheet to assess where the opportunities lie. It is not only time-consuming and inefficient, the data is dependent on others which creates a liability in fast-moving and competitive markets. These legacy processes are being challenged as gasoline markets undergo significant change.
Unpredictability and changing market landscapes
The shift to renewables and uptick in electrical vehicles has created uncertainty at a macro level, with the balance of supply and demand liable to move location in line with adoption of these technologies. The regulation driving this change is also likely to shift supply and demand routes, making markets even less predictable globally.
Whilst OTC markets remain quite opaque, the overall increase in transparency and adoption of technology is serving to increase the competitiveness of these markets. Gasoline traders are under increasing pressure to obtain and execute on the sharpest numbers to be successful.
“There is no such thing as an ‘easy deal’. You need to ensure you are executing on the razor sharp numbers in these markets.” – Gasoline Trader at Large Bank
Automation provides a chance to increase bandwidth and manage complexity
Time spent manually compiling data is an opportunity cost for traders in such competitive markets. Our data shows traders can spend two hours more manually capturing and processing quotes for pre-trade decision making. This takes valuable time away from high level strategic decisions.
Automation provides an opportunity to free up bandwidth to focus on higher-value endeavours such as assessing fundamentals and building counterparty relationships. This is quickly becoming essential in such competitive markets. To gain a true edge however automation alone won’t be enough, gasoline traders need access to better data to manage market complexity.
“Having a view of the lighter fractions of oil is essential, but getting a view of these forward curves is a constant challenge.” – Gasoline Trader at Independent Trader
Many of the major gasoline benchmarks – such as USGC, ARA, Singapore – are only traded OTC. This means oftentimes getting a view of the market is only possible if you’re actively trading it.
To outcompete in gasoline markets, traders need to have a view of core benchmarks as well as adjacent markets. Understanding where important markets like Propane and Naptha are is key when computing blend components.
Gasoline traders can leverage solutions like Tallarium to automate price discovery and get a view of the wider market, without having to shop around and manage an influx of quotes. Not only does this allow them to track all the markets that matter to inform decision making, the aggregation of pricing information from the wider market gives insight not all competitors will have.
A view of Tallarium’s pricescreen for Ebob.
Sharp curves that update in real time enable traders to rapidly identify dislocations in pricing
With curves moving around based on a number of flows at any given time, spotting bids that are too high or offers that are too low can be a challenge. This leads to suboptimal execution that can constrain a trader’s profitability. To solve this problem, Tallarium developed T-Curves – automated forward curves that deliver a view of the whole market.
T-Curves aggregate pricing data from across OTC refined oil markets and uses data science to deliver a live, accurate and objective view of where these markets are trading that updates in real time.
In addition to removing manual and time consuming processes, an objective view of where core and adjacent markets are trading gives gasoline traders broader and deeper market insights to inform decisions.
This is particularly valuable in gasoline markets where traders need to track a multitude of gasoline spreads and blend component forward curves. Leveraging such data provides an opportunity to find the sharpest number for execution across the market, and thus can deliver a significant competitive advantage.