• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 20 mins GREEN NEW DEAL = BLIZZARD OF LIES
  • 16 mins How Far Have We Really Gotten With Alternative Energy
  • 2 hours If hydrogen is the answer, you're asking the wrong question
  • 3 days Oil Stocks, Market Direction, Bitcoin, Minerals, Gold, Silver - Technical Trading <--- Chris Vermeulen & Gareth Soloway weigh in
  • 5 days The European Union is exceptional in its political divide. Examples are apparent in Hungary, Slovakia, Sweden, Netherlands, Belarus, Ireland, etc.
  • 15 hours Biden's $2 trillion Plan for Insfrastructure and Jobs
  • 4 days "What’s In Store For Europe In 2023?" By the CIA (aka RFE/RL as a ruse to deceive readers)
Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

More Info

Premium Content

New Commodity Trading Rules Good for Big Oil

The move by banking and securities regulators to ban proprietary trading at financial institutions could put an end to Wall Street’s dominance in the commodity hedging game, giving greater advantage to oil majors, but make it difficult for smaller oil and gas producers to lock in future prices to mitigate risk, industry experts say.

The tougher trading regulations, known as the Volcker Rule, were finalized on 10 December by banking and securities regulatory agencies, and will prohibit proprietary trading by banks with the end goal of drawing a line in the sand between commercial banking and investment banking.  

The Volcker Rule, implemented in the wake of the financial crisis and named after former Federal Reserve Chairman Paul Volcker, is being viewed by some as a major coup in commodities trading for non-banks, including oil majors and commodity trading houses.

Related article: 3 Never-Seen Events That Mean Big Changes For Oil Investing

The new rules should be favorable for oil majors and large trading houses because the Volcker Rule does not apply to them, according to Risknet.com.

On the new commodities playing field, experts are predicting that we will see more hedging with oil giants and major trading houses like Vitol.

At the same time, small and medium-sized oil and gas producers could take a hit.  

“The Volcker Rule isn't a frontal attack on exploration and production companies, but the secondary effects could make it much more expensive and restrictive for them to enter into these financial instruments,” the Houston Chronicle quoted Ernie Lachica, a Houston-based principal of UHY LLP who specializes in hedging and trading, as saying. “It could put constraints on the overall energy industry.”

Related article: Energy Secretary Signals Support for Revisiting U.S. Crude Export Ban

The end result could be higher costs and less liquidity for smaller producers, he said.

ADVERTISEMENT

While banks may have been wrong-footed in the deal, they were already inching out of commodities trading before the 10 December decision. According to earlier media reports, on 5 December, Deutsche Bank said it would downsize its commodities trading due to expected regulatory changes, and earlier in July, JP Morgan announced plans to spin off its physical commodities trading, while Morgan Stanley is also said to be considering pulling back a bit.

By. Charles Kennedy of Oilprice.com


Download The Free Oilprice App Today

Back to homepage





Leave a comment

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News