Citi Sees Oil Majors Carving out Modest Role in Hedging

Citigroup said investment banks will remain the main players in hedging energy products even though oil majors are carving out a role in the sector as some banks cut their exposure.

 

Citi, Goldman Sachs and JP Morgan are the top three banks active in commodities trading, while peers such as Barclays (BCS) and Deutsche Bank have cut back following the 2007-9 financial crisis and the introduction of the Dodd-Frank regulations.

 

Last year, oil major Royal Dutch Shell (RYDAF) made a splash by becoming one of the first non-bank counterparties involved in the Mexican government 2017 oil hedging programme, the world's biggest.

 

"It's natural that they (oil majors) will try to step into that space a little bit because so many banks have been pulling out," Jose Cogolludo, Citi's global head of sales and origination for commodities, told reporters on Thursday.

 

Stuart Staley, the global head of commodities, said risk management would be more for the likes of trading units at Shell and BP than the independent traders such as Vitol or Trafigura, who would be more involved in pre-payments deals.

 

"The integrated majors, because of their credit rating, in some cases can provide a similar security to a project or government or company by providing hedging. In some sense, I would bucket BP and Shell differently," Staley said.

 

He said the moves were not limited to oil but involved hedging for the U.S. and European power markets although he said he expected banks to remain the leading players in risk management and hedging.


(Reporting By Julia Payne and Dmitry Zhdannikov; Editing by Susan Fenton)