Mcsey

&company

GlobalEnergy&MaterialsPractice

HowtocapturethenextS-curveincommoditytrading

Inthepastfewyears,commoditytradersfocusedontakingadvantageofhighvolatility.Today,amidleanerindustrymargins,successfultraderscanmaximizevaluefromexistingassets.

byJoschaSchabramandRolandRechtsteiner

February2025

Afteraperiodofexceptionalprofits,commoditytradingmarketsarestartingtonormalize,causingindustry-widemarginstostagnateorevenrecede.Ourresearchshowscommoditytradersgeneratedmorethan$100billionEBITin2023,and2024

earningsindicateindustryvaluepoolsdecreasedbymorethan30percentyearoveryear,with2025shapinguptolookmuchthesame.

Duringtheboomyearsof2022and2023,higher

volatilityspurredadramaticincreaseinindustry

margins.Thisattractedanumberofnewentrantsincommoditytradingandmotivatedmanyincumbentstogrowtheirexistingtradingcapabilities.As

marginscompressedin2024,tradersfaced

increasedpressureandhighercompetition.Despitetheserecentdevelopments,longer-termtrends

showtradingvaluepoolscontinuingtogrowsteadilythroughtheendofthedecade.

Asuccessfulresponsetothisnew,leaner

environmentlikelyrequirestheembraceofnew

toolsandrevisedoperatingmodels,bothofwhichcanhelptradersbetterquantifyandmanagepriceexposureandotherkeyrisks.Thisarticleexaminesthestateoftheindustryacrossanumberofcore

commoditiesandsubsequentlyexploreshow

industryplayerscanbestpositionthemselvestocapturethenextS-curveincommoditytrading.

Takingstockofthecommoditytradingindustry

In2024,commoditytradingdemonstrated

remarkableresilience,withmostpricestrendingdownwardandmanypandemic-erasupplychaindisruptionssuccessfullymitigated.Broadly

speaking,pricevolatilityalsodecreased,with2024presentingamorenuancedmarketenvironment.

Thecontinuinglong-termgrowthtrendof

commoditytradingvaluepoolsunderabusiness-as-usualscenarioshowsatrajectorythatcould

reach$115billioninEBIT,implyingapproximately$200billioningrossmarginbytheendofthe

decade(Exhibit1).

Similartopreviousyears,energysectorvaluepools

showthehighestlevelsofchange,withoilandoil

productsdecreasingbyapproximately40percent.

Bycontrast,liquefiednaturalgas(LNG)sawamore

moderatechange(decreasingby23percent),partiallyduetoUSexportcapacitycomingonlinemoreslowlythanexpected.1Powerandgascommoditypools

decreasedbyapproximately40percent.

Meanwhile,agriculturesawanearly25percentdropyearoveryearassupplyrespondedtonear-recordpricesfrom2020to2023andcropinventories

movedclosertoten-year-trendlevels(inmany

cases,agriculturalcommoditypricesareclosertothemarginalcostofproduction).Finally,metalsand

miningmarginssawanuplift—althoughoverallpricesfell,severalmerchanttradingcompanies2performedbetterthanin2023—leadingtoagrowingmargin

valuepoolofnearly20percent.

Takingalonger-termview,steadygrowthinmargins

isexpectedfortheremainderofthedecade.The

growingliberalizationofpowermarkets,increasingenergyvolatilityfromwidespreadadoptionof

renewables,andtheneedtooptimizeflexassetsanddemandwillmeanthatpower,gas,andLNGmarketswilllikelydrivemuchoftheexpected

growth.Oilandoilproductswilllikelygrowata

slowerrateorevenstayconstant,makingitlikely

thiscommoditygroupingwillbesurpassedbypowerandgasasthelargestvaluepoolby2030.Finally,

marginsfromemergingassetclassesrelatedtotheenergytransitioncouldfurtheraugmenttrading

incomeoverthenextfiveyears.

Oilandoilproducts

Development.Theoverallprofitabilityofoilandoil

productsdecreasedin2024,continuingasustaineddeclinefromrecord-breakinghighsin2022,whenmarginsmorethandoubledhistoricalaverages.

Oilpricevolatilityalsodeclinedin2024comparedwiththepreviousyear.However,variousfactors,includingrecentgeopoliticaldevelopmentsintheMiddleEast,ledtoincreasedvolatilityinthethirdquarterof2024.

1TheLNGvaluepoolsontradingEBITmarginsreflectonlytheirrespectiveintrinsicvalueandareexclusiveoflong-termcontracts,tollingmargins,andliquefactionmargins.Includingthesewouldincreasevaluepoolsbyapproximately1.8to2.2times.

2Referstomarketparticipantswithlimitedownershipofassets(thatis,mines,refineries,solarfarms)thattypicallyfunctionasintermediariesthatfacilitateglobaltrade,ratherthantheproductionofunderlyingcommodities.

HowtocapturethenextS-curveincommoditytrading2

Exhibit1

Projectionsshowcommoditytradingvaluepoolsincreasingby10percentperannumby2030.

TotaltradingEBIT,$billion2023–24change,%

Oilandoilproducts

115

Powerand

gas

Lique?ednaturalgasAgricultural

104

+10%perannum

99

Metalsandmining

72

–39

52

48

32

–38

29

27

–23

–24

+18

20172018201920202021202220232024E12030E

Note:Figuresmaynotsum,becauseofrounding.1Valuesfor2024arepreliminary.

Source:S&PGlobalMarketIntelligence;McKinseyanalysis

McKinsey&Company

2024wasanespeciallychallengingyearformany

asset-backedtradersoperatingintherefining

space.Increasedglobalrefiningcapacity,coupledwithrelativelyweakdemandforpetroleumproductsintheUnitedStatesandotherOECDnations,

pusheddownrefiningmargins.2024alsosaw

closuresannouncedforseveralrefineriesinEuropeandtheUnitedStates,pairedwithnewcapacity

comingonlineinregionswithgrowingdemand,suchastheMiddleEastandAfrica.

Competitionoutlook.Severalfactorscoulddriveanuptickincrudepricevolatilityin2025.Recentyearshaveseenconstrainedupstreamcapital

expenditures,whichcouldlimitcrudesupplyin

theshortterm.Geopoliticaldevelopmentsremainamajorsourceofvolatility,withcrudepricingandavailabilityaffectedbyongoingdevelopmentsin

EasternEuropeandtheMiddleEast.Atthetime

ofthisarticle’spublication,proposedtariffson

importstotheUnitedStatescouldreshapecrudeflows,potentiallyreroutingasmallportionofsomeCanadiancrudetonewmarketsinEastAsiaviatheexpandedTransMountainPipeline.

Thechallengingoperatingenvironmentfor

refinersprovidesmerchanttradingcompanies

anopportunitytoincreasetheirexposureto

downstreamassets.Leaneroperatingstructures,loweroverheadcosts,andcommercialtrading

HowtocapturethenextS-curveincommoditytrading3

acumencanempowertheseplayerstoengage

inprofitableasset-backedtradingactivity.Some

independenttradershavealreadybeguntoengageinM&A,deployingcashaccumulatedduringthe

recentboomtopurchasestakesinEuropeanand

Asianrefineriesandinternationalretail—atrendthatwilllikelyaccelerateinthenearfuture.Incumbent

asset-backedplayerswilllikelycontinueleveragingcommercialandoperationalleverstoextractthefullvaluefromtheirdownstreamportfolios.

Inthelongerterm,agradualconsolidationof

marginsinoilandoilproductsislikely,withdemandpotentiallyplateauingatsomepointbetween

2025and2035.Intheshortterm,datashowChinamovingawayfromitsroleastheprimarydriverofglobaldemand(amantlethatwilllikelybetakenup

bynon-OECDeconomiessuchasBrazil,India,andtheMiddleEast).3

Powerandgas

Development.Demandforpowerissurgingas

supplytightens(Exhibit2).In2024,thisincreasewasintensifiedbymarketvolatilityfromanuptickintheshareofrenewablesandtheongoingroleofgasintheenergytransition.Demandwasfurtherheightenedbyelectrificationeffortsandaging

infrastructure,indicatingthisvaluepoolwilllikelyremainstrongin2025.

InEurope,powerpurchaseagreements(PPAs)soaredto21gigawatts(GW)in2024,drivenbyrenewableenergyandcorporatedemand.Yetuncertaintiespersistaroundhowtoachieve

3GlobalEnergyPerspective2024,McKinsey,September17,2024.

Exhibit2

Newdemandcenters,includingdatacenters,transport,andhydrogen,areprojectedtoseerapidgrowthinpowerdemand.

Globalpowerdemand(historicalandforecast),thousandTWh

Actual

Forecast

64

+3.5%

perannum

31

25

+3.0%

perannum

18

13

CAGR,2023–50,%Transport10Datacenters8

H?andsynfuels20

Buildings2

Industry3

20002010202320302050

Source:GlobalEnergyPerspective2024,McKinsey,September17,2024

McKinsey&Company

HowtocapturethenextS-curveincommoditytrading4

targeteddemandgrowthintimesofsluggish

installationofheatpumps,slower-than-expectedelectric-vehiclesales,lacklusterindustrial

electrificationinvestment,andprojectdevelopmentdelays.Atthesametime,somegridandmarket

operatorsintheUnitedStatesarerevisingforecaststoaccommodatea15percentannualincreasein

powerdemandfromdatacentersthrough2030;

however,theeventualenergyneedsfromAItechnologiescouldvary.

Competitionoutlook.Lookingahead,theincreasinguncertaintyaboutdemanddevelopment,alongside

renewablespenetrationandregulatoryuncertainties,coulddrivevolatilityandriskpremiums.Meanwhile,globalpowerandgasmarketshavecontinuedto

liberalize,becomingincreasinglycomplexanddata-driven.Leadingtradershaveexpandedoperationsacrosscommodities,markets,andgeographies,

profitingfromamoresophisticatedunderstandingofinterconnectedmarkets.

Asmarketsevolve,theabilitytoprocesslargevolumesofdataandleveragequantitative

approachesthroughtraditionalAIandAIfoundationmodelsisbecomingparamountforsuccess.The

followingtrendsunderscorethisshift:

—Flexibleassets,suchasbatteries,are

gainingimportanceinthevaluechainbutare

significantlymorecomplextovalueandtrade

thantraditionalrenewableassets,suchaswindandsolar.Althoughrenewablesoftenfocus

onPPAoriginationandshort-termtrading,

flexibilityrequirestraderstomanageintricatemodelsthataccountforstorage,dispatch,andmultimarketoptimization.

—Short-termvolatilityisincreasingasmarkets

becomemoredependentonchangesinthe

weather,withfactorssuchasextremeweathereventsandrenewableintermittencyplaying

largerroles.Atthesametime,marketsare

becomingmoregranular,withadditionaltrading

zones,shortertradingperiods,andmorefrequenttransactions.

Thecompetitivelandscapeisevolvingwiththe

riseofdata-driventradingfirms,whichwereable

tocaptureremarkableprofitsin2022and2023.4

Today,thesefirmschallengeestablishedtraders

forcapital-intensivevaluepools,particularlyin

areasthatrequiresubstantialcreditworthinessandliquidity,suchascoveringmargincalls.

LNG

Development.Ingeneral,2024wasmarkedby

sustainedtightnessintheglobalLNGmarket

astraderscontinuedtoprofitfromgeographic

arbitrageopportunitiestosupplyEuropeandAsia.

TheinitialsupplyshockinEurope’snaturalgas

marketsfollowingthestartofthewarinUkrainehassentpricestorecordhighs.Sincethen,naturalgasdemandhasbeenreducedsignificantly,relativetoconsumptionin2021.5

ThereductionofEurope’sdemand,primarilyduetoreducedindustrialmanufacturingandwarmerwinterseasons,hasrebalancedtheregion’s

marketsandsignificantlyloweredgasprices(whicharestillabout50percenthigherthanin2021).WithRussianpipegassupplytoEuropereducingand

domesticproductionrapidlydeclining,EuropehasbecomemoredependentonimportedLNGintermsofvolumes.Onthispoint,pricebackwardation

reflectsexpectationsofatightermarketnext

summer,whenEuropeanstorageinjection

requirements6willlikelyneedtooutcompeteAsianbuyersforspotLNG.

Onthispoint,themandatorysecurityofsupply

inwintertimeisreducingthewinterandsummerspreadwholesalemarketsasmoregasinstoragebecomesavailable,thereforereducingtheriskofshortagesinareaswithparticularlycoldweather.Thishassomewhatreducedthemarket-based

returnsforstoragecapacityaswellasthetrading

4Formore,seePiotrPawlowski,RolandRechtsteiner,andJoschaSchabram,“Thecriticalroleofcommoditytradingintimesofuncertainty,”McKinsey,April4,2024.

5VictoriaZaretskaya,“LessnaturalgasconsumptioninEuropeiskeepingstoragefull,”U.S.EnergyInformationAdministration,July23,2024.

6TheEuropeanUnion’sgasstorageregulationrequirescontinentalundergroundstoragelevelstohit90percentbyNovember1eachyear.Formore,see“EUgasstorages95%fullaheadof1November,surpassingthe90%targetintheGasStorageRegulation,”EuropeanCommission,

October31,2024.

HowtocapturethenextS-curveincommoditytrading5

andrisk-managementopportunitiesaroundwinterandsummerspreads.

Competitionoutlook.AlthoughtheLNGmarketis

largelybalanced,aninflectionpointisimminent

asadditionalliquefactioncapacitycomesonlineintheUnitedStates.Aftersomedelays,thefutures

marketnowshowsLNGpricesdroppingbyas

muchas30percentbylate2026orearly2027,as

opposedtooriginalexpectationsofaninflection

pointby2025.7Ourresearchshowsthatonce

pricesfallbelow$10permillionBritishthermalunits(MMBTU),theeconomicsofusingLNGforpower,

fertilizerproduction,androadtransportationcouldbecomeincreasinglyattractive.

Nonetheless,LNGfacespotentialdisruptionsdrivenbyfactorsincludinggeopolitics(suchaschangesintradepolicies),shiftsingassupplysources,orthe

reemergenceofmajorsuppliersinglobalmarkets.

Europehastraditionallybeenaflexibleoff-taker

marketforglobalgasdemand,buttheregion’sshiftawayfromcoal-poweredgenerationtorenewableshasreducedthisflexibility,makingtheregion

increasinglyreliantonLNGimportstomeetenergyneeds.Asaresult,competitionforLNGbetween

AsiaandEuropewillbecomeakeydeterminantofglobalLNGprices.Potentialoptionalitybetween

theseregionscouldprovidetraderswithincentivestostrategicallyaugmentaccesstoregasification

plantsandLNGshippingcapabilities.

Agriculture

Development.In2024,grainandoilseedmarketsmovedclosertoten-yearpriceaveragesas

productionexpanded,inventorieswerebuilt,andmarketvolatilityfromgeopoliticalriskssoftened

(comparedwiththepastthreeyears).Meanwhile,

otheragriculturalcommoditiesdemonstrated

widevariations.IntheUnitedStates,cocoapricessurgeddramaticallyfromapproximately$4,000

permetrictontomorethan$11,000permetric

ton,8whilesupplyconstraintsledtosporadicralliesinsugarandcotton.Thebiofuelssectorstruggledwithmarginsassupplyexceededmandatedlevelsinkeymarkets,includingtheUnitedStates,andthe

shiftfromsoybeanoiltoalternatives,suchasusedcookingoilandbeeftallow,compoundedpressuresonrenewable-dieselfacilities.

Anotherdevelopmentisthewidespreadmove

toward—andinvestmentsin—data-driven(AI)

trading.Agriculturemarkets,inparticular,standtobenefitfromAItechnologythatcanrapidlyandconsistentlyingestdatafromnumerouspublic

andprivatesourcesanddevelopasynthesized,actionablerecommendation.9

Competitionoutlook.Majoragriculturalplayersaresettoshapefuturetradebyenhancingefficiency

andadaptingtoevolvingtradeflowdynamics

andregulatorylandscapeswhilebalancingfood

securitywithenvironmentalandsustainability

goals.Leadingcompaniesarelaunchingresilienceinitiativesanddiversifyingintospecialty—often

identity-preservedorcustom-sourced—productsforhighermargins.Andintegratedagricultural

tradersareleveraginginnovationsinagriculturetechnologytomitigatevolatilitythroughAIandimprovedlogistics.

However,uncertaintiesremainlinkedtocertain

factorssuchastradepolicyandlabordynamics.

Forexample,potentialtariffsonimportsofused

cookingoilfromChina,alongwiththepotential

forchangingUSbiofuelsubsidies,couldreshapeagriculturalflows,especiallyforsoybeanoil.Thesechangescouldleadtoincreasingvolumesof

soybeanstradedbetweenBrazilandChina.

Somelargerplayersareconsolidatingoperationsthroughvaluechainintegration.In2025,optimizing

physicalassetsbyaligningoperationsacross

feedstocksandstoragecouldbepivotalforgeneratingvalue.Someglobalnetworkskeenonlocalizedsupply

anddemandshiftsarepursuingarbitrageopportunities,acceleratingaccesstocriticalinsights.

Metalsandmining

Development.AccordingtoMcKinsey’sGlobal

MaterialsPerspective2024,demandformetalsisprojectedtoremainstronguntil2035.10Similarly,

7BasedonBloombergNEF’sGlobalGasandLNGOutlooks.

8BasedondatafromICEFuturesU.S.

9Formore,see“Frombytestobushels:HowgenAIcanshapethefutureofagriculture,”McKinsey,June10,2024.

10GlobalMaterialsPerspective2024,McKinsey,September17,2024.

HowtocapturethenextS-curveincommoditytrading6

Globaltradeflowsexperienced

unprecedentedvolatilityand

disruptionin2022and2023andareunlikelytoresumeinthenearterm.

growthformostsubcommoditiesisexpectedto

outpacewhathasbeenobservedoverthepast

decade.Asaresult,tradershavebeenfocusedonincreasingaccesstoconcentratesofnonferrousmetalandminerals,particularlygainingexposuretothebatterymetalsvaluechain.However,

uncertaintyaboutwhichbatterychemistrymix

willbecomeprevalentcouldaffectfuturedemandpatterns(Exhibit3).

Growingdemandfromtheenergytransitionand

datacentershasofferedincentivestomining

companiesandmetalrefinersaliketobringsupplyonlinefasterthanpreviouslyexpected.Savvy

metalstradersarealsoinvestinginmetalsrecyclingandsecondaryprocessingassetsforhigh-demandcommoditiessuchascopper.However,changing

regulationandexportcontrolsintendedtofoster

localoutputofstrategicmetalswilllikelyadd

complexitytothevaluechainandtradepatterns.

Forexample,theEU’sCarbonBorderAdjustment

Mechanism(CBAM)isexpectedtotakeeffectin

2026,alongwiththegrowingsetofleviesonmetalsimportsputinplacebytheUnitedStates.Anothertrendistheincreasingregionalizationofsupply

chains.Forinstance,Chinacurrentlycontrolsmuchofthebatteryandsolarsupplychains,withother

countriesrespondingindifferentways.11

Competitionoutlook.Thenegativepriceoutlook

formanymetalcommoditiesin2024meansthat

producerssawtradingmarginscompress.However,overallmarginpoolsstayedflatasasset-light

tradinghouseswereabletooutdotheir2023

performancebyfocusingonback-to-backtradesandhigh-demandmetals.

Someincumbenttraderssuccessfullyprotected

accesstoin-demandnonferrousmetalssuchas

copperandlithiumbylockinginlong-termcontractswithminersandmetalsprocessors,offering

prefinancingandinvestingincriticallogisticsassets.However,theshifttowardlow-carbontechnologiesisunfoldingmoreslowlythanexpected,putting

downwardpressureonpricelevels,especiallyforbatterymaterialssuchasnickelandlithium.12Asaresult,thereareincreasedopportunitiesfornewtradingentrantstocapturemarketshareofore,

concentrates,andrefinedmetals.

Moreover,metalstradershavehadtoaccount

forthegrowingroleofsecondarymetals.Supply

shortagesanddecarbonizationambitionshaveledtosignificantinvestmentincollectionandrecoveryofscrapcopperandaluminum.

Creatingalpha:ThenextS-curveincommoditytrading

Globaltradeflowsexperiencedunprecedented

volatilityanddisruptionin2022and2023andareunlikelytoresumeinthenearterm.Whenmarginpoolsexplodedintheserecordyears,tradershadanincentivetogrowtheiroperationstomaximizevaluecapture.Highprofitsattractednewentrantstothetradingspace.Asmarginsrapidlyexpanded,

11Formoreonthisresponse,seeMarcusCooper,SpencerHolmes,andRolandRechtsteiner,“Thetradingopportunitythatcouldcreateresilienceinmaterials,”McKinsey,September26,2023.

12GlobalMaterialsPerspective2024,McKinsey,September17,2024.

HowtocapturethenextS-curveincommoditytrading7

Exhibit3

Changesinsupplyanddemandhaveledtoamorebalancedoutlook,butsupplyshortageisstillanticipatedforseveralmaterials.

Supply–demandbalance2035forecast1Supplyvsdemandgap,%

–40–30–20–100>0

Capitalexpendituresneededtoscaleupsupply,

2024–35,3$billion

Changeinanticipatedvs2023perspective

Basecasesupply

Highcasesupply

gap

Materials

REEs2

2024perspective

Slightclosingofgap

~70

Lithium

Slightclosing

ofgap

~270

Sulfur?

Unchanged

Uranium

Unchanged

<10

Iridium

Slightclosing

ofgap

<10

Copper

Slightclosing

ofgap

~400

Zinc

Slightclosing

ofgap

~70

Nickel

↓

Gapclosed

~320

Cobalt?

↓

Gapclosed

1Consideringminedsupplyin?nalproductequivalents.Onlydepictingselectmetalsandmineralsthatarecriticaltotheenergytransition.2Rareearthelements.3Totalminingandprocessingprojectcapitalexpenditureneed.?Capitalexpendituresnotassessedduetouncertaintiesinsupplydevelopment,assulfurproduc- tionisprimarilyabyproductfromoilandgasproductionratherthanaminedproduct.5Cobaltminingandprocessingcapitalexpendituresincludedincopper

andnickeldepositsasitisminedandre?nedasasecondarymaterial.

Source:GlobalMaterialsPerspective2024,McKinsey,September17,2024

McKinsey&Company

industryplayerswereoftenabletoturnaprofitbysimplyparticipatingincommoditymarkets.Traderswereprimarilyfocusedonbuildingcapacity,takingadvantageofthemarketstructure,andmanagingvolatility,includingbuildingoutmiddleandback

officesinanunstructuredway.

Now,asmarginsrecedeandthetidecomesback

in,traderscanrunleanerandworkhardertobuild

profits.Tradingperformanceaswellasoperationalefficiencyandeffectivenesswillbecriticalinthe

yearstocome.Proactiveideationofopportunitiesandrelentlessexecutionarekeytodrivethegrowthmomentum.Doingthesethingsentailsincreasing

valuefrom,andexpanding,pastcoreactivitiesas

wellastappingintonewandemergingmarkets(Exhibit4).

Increasevaluerealizedbycoreactivities

Movingforward,threethingscouldhelp

commoditytradersincreasethevaluealready

beingrealizedbycoreactivities:comprehensivevaluechainoptimization;reviewing,redesigning,andreallocating;andinvestingingrowingdigitalcapabilities.

Comprehensivevaluechainoptimization.As

marginpoolsacrosscommodityclassesrebound,traderswithcapital-intensiveassetscanaim

toensuremaximumassetyieldandefficiency.

HowtocapturethenextS-curveincommoditytrading8

Exhibit4

Inlightofcompressedmarginsandincreasedcompetition,traderscanlooktothreedistinctS-curvesthatcancontributetofuturepro?tgrowth.

S-curve

Increasevalue

fromcoreactivities

Expandpastcoreactivities

Tapintonewandemergingmarkets

Subtopics

“Shrinktogrow”

Optimizevalue

chain

Digital

capabilities

Expand

activityset

Tradingenergy

transitionassets

1Guaranteesoforigin.

McKinsey&Company

Thisisparticularlyclearwhenlookingatthe

petroleumvaluechain.Here,refiningspreadshavecompressed,andleadingasset-backedtradersaretakingstepstoextracteverybitofvaluefromassetoptimization.Furthermore,

leadinginternationaloilcompanies(IOCs),nationaloilcompanies(NOCs),andrefinersaretaking

stepstoharmonizecommercialambitionswith

operationaleffectiveness,empoweringvalue-

chain-optimization(VCO)organizationsincludingadvanceddigitalsolutionstodrivevaluecreation.

Therecentcompressionofglobalcrackspreads

makesVCOparticularlycriticalforenergyfirms.

Theresultsaretangible.Operatorsthateffectivelyoptimizetheirdownstreamvaluechainsee,on

average,morethan$1perbarrelinadditional

EBITversusplayerswithlesssophisticatedVCOcapabilities.Ouranalysisshowsthatwidespreadimplementationoftheseoptimizationmeasurescancollectivelyaugmenttrading,refining,and

downstreamprofitsandlosses(P&L)bymore

than$30billionayear.Theseopportunities

extendbeyondcrudeandrefinedproducts.Powercompaniesaremaximizingreturnsfromadiverse

assetprofile,includingwind,solar,gas,andnuclearplants.Andmetalsproducersarebreakingdown

organizationalsilosandadoptingmine-to-marketmindsets.

Withthesepointsinmind,someenergyfirmsare

actingtodebottleneckinterfacesbetweenbusinessunits,suchasVCOs,upstream,refining,trading,

logistics,andmarketing.Often,eachgrouphas

incentivestomaximizeitsownP&L,ratherthan

drivingthegeneralinterestoftheorganization.

Thatsaid,enablingassetoptimizationcanrequireaculturalreset.Thisrefreshofexistingpracticescanenablebetterinformationflowanddecision-makingacrossthebroaderorganization.However,cultural

resetsaren’teasytoaccomplishandcanentail

reconfiguringorganizationalstructuresandevolvingemployeeincentivesandKPIs,resultinginnew

cross-teaminteraction.

HowtocapturethenextS-curveincommoditytrading9

Inaddition,somefirmsareintentionallyincorporatingcommercialleverstodriveasset-relateddecisions.Forinstance,we’veseenaglobalpushformanyrefiners

toinvestinblendingcapabilitiesandexpertise,bothattherefineryandfurtherup-ordownstream.Inthisexample,improvedcooperationbetweenassets,

traders,andVCOsisoptimizingrefinerycrudeandfeedstockdietsandproductoutputsandisfindingsynergiesacrossmultipleassetsandregions.

Finally,anumberoffirmsareempowering

VCOgroupstoworkwithrefineryoperations

toconstantlyidentifyandimplementmargin

optimizationinitiatives.CentralizedVCOteamsareleveragingcross-assetlinearprogrammingmodels,regularback-testing,andotheroptimizationtoolstof