The rise of Big Data, changing regulations and evolving real-time trading trends are leading global commodity giants, trading houses and other market participants to think about recalibrating their traditional models and how business will be conducted moving forward.
This is understandable given the sums that are at stake, with research from consulting firm BCG estimating that the commodity trading industry’s potential value pool is worth around $70 billion per year.
- However, new players are emerging, either starting up businesses or backing those aiming to re-engineer some traditional methods of oil refining.
- "Commodity trading and oil trading as the largest commodity will be significantly shaped by two mega-trends, namely new data sets from remote sensing via satellites, as well as superior data science models that can process, curate and combine datain near real time on a massive scale." - Florian Thaler, CEO of OilX
- These themes are also altering the power balance between the new entrants and established industry players such as oil majors, banks, brokers and service providers.
- On the face of it, commodity trading sounds straightforward: Make a profit by monetizing market imperfections such as those related to quality, time and location. The reality is, of course, more nuanced.
The commodity trading industry has a long history of agility and constant adaptation. However, the speed of change and the diversity in background and skill set of new entrants in the space will require the big players to embark on new ways to create proprietary information flows and utilize algorithm-based analytics.
The incorporation of data science technologies into the decision-making process may also see a number of traditional players entering partnerships with some of the startups that are setting out to disrupt the industry.
Photo (Rig) by Nandu Chitnis.
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