SINGAPORE - For the past five years, the annual get-together of Asia's oil trading professionals has been a celebratory affair, marked by steadily rising oil prices, expanding trading volumes and swelling bonuses.
This year, any merry-making will mask gloom for an industry reeling from the worst financial crisis in 80 years.
From the landmark Raffles Hotel to the waterfront bars on Boat Quay, the conversation this week is likely to be less about the year's successes than the pitfalls that lie ahead in a market where the glass of liquidity is half empty and trust is a rare commodity.
"No one talks about bonuses these days. The only talk is whether you can keep your job," said one oil trader in Singapore, who asked not to be named in order to speak candidly.
As the year-long credit crisis intensified last month into a financial tsunami that upended Wall Street banks and sent equity and commodity markets into a tailspin, the global oil trading community has suffered on two levels.
For one, the dramatic halving in prices since early July's record of $147 a barrel has coincided with a surge in historic price volatility to over 80 percent, its highest since the first Gulf War, leading to steep losses and forcing traders either to brave turbulent waters or, in most cases, close their books and wait out the storm.
At the same time, the collapse of Lehman Brothers and crisis of confidence in once blue-chip financial institutions -- which caused global credit markets to freeze up -- had a similar chilling effect on the Asian over-the-counter (OTC) swaps trade, the main type of contract in a region that lacks a local futures market.
"It's a very, very tough time," said Akira Kamiyama, derivatives trader at Mitsui & Co, Japan's No. 2 trading firm.
The Asia-Pacific Petroleum Conference (APPEC) is the sparsely attended event used as an excuse for some two-dozen corporate events and swank soirees hosted this week by household names such as BP (BP.L: Quote, Profile, Research, Stock Buzz) or Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz) as well as industry titans such as Vitol and Saudi Aramco.
At an early event last week given by bunker fuel trader Chemoil (CHEL.SI: Quote, Profile, Research, Stock Buzz), not all were convinced by the upbeat mood.
"They're in a state of denial," one party-goer said.
TOUGH TIMES AHEAD
For many in the industry, the tough times began months before September's meltdown, as the mid-year price surge stressed lending limits and forced traders to scale back positions in order to stay within value-at-risk (VaR) limits, the actual risk exposure that trading firms set for themselves.
A tumble in refining margins, and a grim outlook ahead, has also forced refiners to scramble for every penny of profit, leaving less on the table for middlemen.
The situation has worsened lately, however, with Asian oil swaps trade halving as counterparty credit risk -- the chance that one side of a trade won't be able to make good -- becomes an overriding criteria for whether or not to do a deal.
Oil product swaps transacted last month during the half-hour price assessment window used for setting daily benchmark prices, based on bids/offers and actual trades, fell 44 percent from a year ago, pricing agency Platts said.
Though world governments have pledged trillions of dollars in emergency funds and bought into teetering banks to try to end the crisis, a full recovery remains distant, most traders fear.
"Hedging is tougher now, it's more difficult to find a counterparty with the collapse of Lehman," said Ong Eng Tong, a long-time adviser to oil traders who now works for Mabanaft International, a German trading firm.
Broking houses were not spared. GFI Group (GFIG.O: Quote, Profile, Research, Stock Buzz) and Spectron said last week they would end their Asian oil joint venture just a year and a half after its start.
While those who trade paper oil are bearing the brunt of the impact, physical oil traders -- those responsible for shipping Oman crude to South Korea, or helping fill petrol pumps in Hanoi with gasoline made in Singapore -- have not been untroubled.
The cost of Letters of Credit (LCs) necessary to conduct trade has risen as credit tightens, and some refiners are opting to run down inventories rather than finance stocks, analysts have said -- all of which means less margin for a trader.
BRIGHT SIDE
Not all are gloomy, however.
For some banks, this represents the biggest chance yet to take market share from Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) and Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz), whose decades of dominance in commodity trading is looking less invincible since they swapped their risk-hungry investment bank status for the safety and oversight of a commercial bank.
Standard Chartered (STAN.L: Quote, Profile, Research, Stock Buzz), one of the global banks least affected by the crisis, has moved swiftly to hire key traders from Lehman Brothers' Singapore oil desk. JP Morgan (JPM.N: Quote, Profile, Research, Stock Buzz), backed by a bulwark of retail banking operations in the United States, is said to be scouting for talent.
And for some oil industry veterans, the massive deleveraging across commodity markets as financial investors flee to cash represents a chance to restore the oil market to one driven more by supply and demand fundamentals than by the whim of fickle hedge funds or the course of the U.S. dollar.
Converting that knowledge to profit is another story.
"Sure, we may see the market behave more fundamentally," said one trader at a major oil company, who could not be named because of company policy. "But can you make money trading it? I'm not so sure."
This year, any merry-making will mask gloom for an industry reeling from the worst financial crisis in 80 years.
From the landmark Raffles Hotel to the waterfront bars on Boat Quay, the conversation this week is likely to be less about the year's successes than the pitfalls that lie ahead in a market where the glass of liquidity is half empty and trust is a rare commodity.
"No one talks about bonuses these days. The only talk is whether you can keep your job," said one oil trader in Singapore, who asked not to be named in order to speak candidly.
As the year-long credit crisis intensified last month into a financial tsunami that upended Wall Street banks and sent equity and commodity markets into a tailspin, the global oil trading community has suffered on two levels.
For one, the dramatic halving in prices since early July's record of $147 a barrel has coincided with a surge in historic price volatility to over 80 percent, its highest since the first Gulf War, leading to steep losses and forcing traders either to brave turbulent waters or, in most cases, close their books and wait out the storm.
At the same time, the collapse of Lehman Brothers and crisis of confidence in once blue-chip financial institutions -- which caused global credit markets to freeze up -- had a similar chilling effect on the Asian over-the-counter (OTC) swaps trade, the main type of contract in a region that lacks a local futures market.
"It's a very, very tough time," said Akira Kamiyama, derivatives trader at Mitsui & Co, Japan's No. 2 trading firm.
The Asia-Pacific Petroleum Conference (APPEC) is the sparsely attended event used as an excuse for some two-dozen corporate events and swank soirees hosted this week by household names such as BP (BP.L: Quote, Profile, Research, Stock Buzz) or Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz) as well as industry titans such as Vitol and Saudi Aramco.
At an early event last week given by bunker fuel trader Chemoil (CHEL.SI: Quote, Profile, Research, Stock Buzz), not all were convinced by the upbeat mood.
"They're in a state of denial," one party-goer said.
TOUGH TIMES AHEAD
For many in the industry, the tough times began months before September's meltdown, as the mid-year price surge stressed lending limits and forced traders to scale back positions in order to stay within value-at-risk (VaR) limits, the actual risk exposure that trading firms set for themselves.
A tumble in refining margins, and a grim outlook ahead, has also forced refiners to scramble for every penny of profit, leaving less on the table for middlemen.
The situation has worsened lately, however, with Asian oil swaps trade halving as counterparty credit risk -- the chance that one side of a trade won't be able to make good -- becomes an overriding criteria for whether or not to do a deal.
Oil product swaps transacted last month during the half-hour price assessment window used for setting daily benchmark prices, based on bids/offers and actual trades, fell 44 percent from a year ago, pricing agency Platts said.
Though world governments have pledged trillions of dollars in emergency funds and bought into teetering banks to try to end the crisis, a full recovery remains distant, most traders fear.
"Hedging is tougher now, it's more difficult to find a counterparty with the collapse of Lehman," said Ong Eng Tong, a long-time adviser to oil traders who now works for Mabanaft International, a German trading firm.
Broking houses were not spared. GFI Group (GFIG.O: Quote, Profile, Research, Stock Buzz) and Spectron said last week they would end their Asian oil joint venture just a year and a half after its start.
While those who trade paper oil are bearing the brunt of the impact, physical oil traders -- those responsible for shipping Oman crude to South Korea, or helping fill petrol pumps in Hanoi with gasoline made in Singapore -- have not been untroubled.
The cost of Letters of Credit (LCs) necessary to conduct trade has risen as credit tightens, and some refiners are opting to run down inventories rather than finance stocks, analysts have said -- all of which means less margin for a trader.
BRIGHT SIDE
Not all are gloomy, however.
For some banks, this represents the biggest chance yet to take market share from Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) and Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz), whose decades of dominance in commodity trading is looking less invincible since they swapped their risk-hungry investment bank status for the safety and oversight of a commercial bank.
Standard Chartered (STAN.L: Quote, Profile, Research, Stock Buzz), one of the global banks least affected by the crisis, has moved swiftly to hire key traders from Lehman Brothers' Singapore oil desk. JP Morgan (JPM.N: Quote, Profile, Research, Stock Buzz), backed by a bulwark of retail banking operations in the United States, is said to be scouting for talent.
And for some oil industry veterans, the massive deleveraging across commodity markets as financial investors flee to cash represents a chance to restore the oil market to one driven more by supply and demand fundamentals than by the whim of fickle hedge funds or the course of the U.S. dollar.
Converting that knowledge to profit is another story.
"Sure, we may see the market behave more fundamentally," said one trader at a major oil company, who could not be named because of company policy. "But can you make money trading it? I'm not so sure."
