Insights

Insights

Insights

2Q 2020 Oil & Gas Market Update - Could This Be Balance?

  • After an extremely difficult first quarter, with simultaneous supply and demand shocks, oil market forward pricing now suggests potential stability for 2H 2020.
  • WTI and domestic grades have flipped from deep contango to flat curves due to cuts from both domestic and OPEC+ producers.
  • However, further COVID-19 flare ups, terminal demand and negative production economics loom as risk factors out the curve.

Commodities: The Next Frontier for Digital Transformation

  • Banks have been slowly migrating manual processes to new FinTech platforms, to unlock efficiency gains and improve client experiences.
  • The recent public health crisis has only increased the need for modern technology platforms to support critical business functions like client hedging.
  • Following in the footsteps of other asset classes moving from paper processes to digital platforms, commodities is next.

1Q 2020 Oil & Gas Market Update

  • Global oil and gas markets experienced simultaneous supply side and demand side shocks during 1Q 2020.
  • US shale E&Ps were particularly hard hit by this market dislocation.
  • Our analysis of 8 oil focused producers highlights the crucial role of hedging in positioning those companies to weather the storm, and prosper in the future.

Hedge Accounting Change Creates Bonanza for Commodities

  • With the advent of organized commodities markets, active trading created price volatility, and ultimately the desire to manage and mitigate commodity price risks.
  • Historical hedging practices combined with an unfriendly US accounting framework resulted in decades of suboptimal commodities hedging practices and outcomes.
  • A recent US accounting standards change provides numerous improvements, some of which are particularly favorable to commodities hedging.
  • We expect these accounting changes will cause an increase in commodities hedging, and a shift in hedging practices that will improve outcomes.

Return of the Yield Curve

  • The U.S. Federal Reserve has begun the process of normalizing interest rates following massive quantitative easing during the Great Recession.
  • Achieving rate normalization is essential to bolster confidence in the economy and will reinstate a normal yield curve after a decade when it was flat.
  • Currently on a path for three increases in 2017, the pace of rate hikes could accelerate if the effect of President Trump’s tax cuts and fiscal stimulus are felt before 2018.
  • The Republican reform agenda contains multiple opportunities for Fed reform, which could alter or potentially derail the current path towards rate normalization.

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If you are a commercial party engaged in hedging,
you can use our efficient online application process

Basic membership is free, and there are no onboarding or setup fees

Want To Join Us ?



If you are a commercial party engaged in hedging, you can use our efficient online application process

Basic membership is free, and there are no onboarding or setup fees


Start Now