• 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
  • 35 mins GREEN NEW DEAL = BLIZZARD OF LIES
  • 5 days How Far Have We Really Gotten With Alternative Energy
  • 4 days By Kellen McGovern Jones - "BlackRock Behind New TX-LA Offshore Wind Farm"
  • 12 days Natron Energy Achieves First-Ever Commercial-Scale Production of Sodium-Ion Batteries in the U.S.
  • 12 days Bad news for e-cars keeps coming
  • 3 hours Solid State Lithium Battery Bank
  • 11 days The United States produced more crude oil than any nation, at any time.
  • 14 days RUSSIA - Turkey & India Stop Buying Russian Oil as USA Increases Crackdown on Sanctions
Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

More Info

Premium Content

Hedge Funds Are Headhunting Succesful Power Traders

  • Hedge funds are hiring power traders from utilities and investment banks.
  • Hedge funds have started to offer a number of extra perks to lure successful traders.
  • The huge profits from the market volatility in 2022 and 2023 may not repeat this year, or in the near future, but hedge funds are preparing for years of power market volatility amid rising electricity demand.
Trader

Attracted by market volatility and the prospect of handsome profits in the coming years, hedge funds are hiring power traders from utilities and investment banks.  

The hedge funds are offering big paydays, profit-share deals, signing bonuses, and perks such as chauffeurs for company cars to traders considering a move to power and natural gas trading, analysts and headhunters have told The Wall Street Journal.

In pursuit of profits during heightened uncertainties in global energy markets, hedge funds are looking to attract top talent to their electricity and gas trading desks, expecting these trades to be as profitable as they were in the past two years of turbulent markets, geopolitical risks, spiking energy commodity prices, and rising interest rates.

The huge profits from the market volatility in 2022 and 2023 may not repeat this year, or in the near future, but hedge funds are preparing for years of power market volatility amid rising electricity demand from AI technologies and volatile power prices, with increased shares of renewables in the electricity mix.

Huge Profits

Last year, commodity trading generated more than $100 billion EBIT in 2023, which translates to more than $150 billion in gross margin, McKinsey & Company said in a report earlier this year.

“Given this dynamic, success in the years to come will increasingly hinge on the ability to manage and respond to unpredictable market circumstances,” McKinsey’s analysts noted.

Power and gas saw the largest year-on-year growth in trading EBIT in 2023, with profits up by 47%, according to McKinsey’s estimates. Power and gas topped the annual rise in earnings from trading among all commodities, ahead of LNG trading profits, which jumped by 28% last year compared to 2022.

Related: Petrochemicals Are Big Oil’s Next Big Profit Hedge

The absolute value of market prices in energy has declined since the peak in 2022, but commodity markets remain tight while “changes in demand and supply have become harder to predict,” McKinsey notes.

“Uncertainty around the security of the energy supply contributes to price volatility, which is amplified by higher, shifting interest rates,” the consultancy said.

The trading value pool for power and gas increased in 2023 as volatility in power and gas in Europe has remained above average, when compared with 2017–2020. Power and gas trading are likely to see increased competition as utilities and renewables players could boost trading capabilities, while hedge funds and banks could be attracted by growing value pools, according to McKinsey.

“New opportunities in power and gas (but mostly in power) will likely emerge around three topics: entering new markets, data-driven trading, and new assets,” the consultancy said.

Trading is the top role in demand among commodities hiring, HC Group, a commodities headhunting firm, said in its Q1 2024 talent demand review.

The most moves by industry, 40%, were made in power and gas in the first quarter of the year, according to the review. Power and environmental products accounted for 23% of the moves, followed by gas and LNG with 21%, and liquid fuels and chemicals with 20% of the talent moves in the first quarter of 2024.

Will Handsome Profits Repeat?

Hedge funds have been active in recruiting traders, but these traders may not be able to repeat the 2022 and 2023 profits this year as gas and power markets have calmed somewhat.

Over the past two years, “If you were on the right side of trades, you made crazy returns pretty much by accident,” an executive at the world’s largest independent oil trader, Vitol, told the Journal.

Amid calmer markets this year, the returns may not be as high as they were in 2022 and 2023.

However, more volatility is in store for the power and gas markets in the coming years. There is surging demand for electricity as AI-focused data centers are driving consumption in the United States higher, after more than a decade of flat consumption. Higher shares of clean energy sources in the electricity mix could also lead to more volatility – hence, higher profits for power traders – as balancing demand with supply in the outdated grid could become more challenging, analysts say. 

Data centers and electric vehicles are expected to add 290 terawatt-hours (TWh) of new electricity demand in the U.S. by 2030, after total demand had remained relatively stable at around 4,000 TWh since 2010, Rystad Energy said in research last month.

“This growth is a race against time to expand power generation without overwhelming electricity systems to the point of stress,” said Rystad Energy analyst Surya Hendry.

U.S. power demand is “likely to experience growth not seen in a generation,” according to a Goldman Sachs report from April.   

Extreme weather events and the weather-dependent nature of solar and wind power generation are also set to add volatility to the power markets, creating conditions for power traders to thrive in uncertain markets with wild price swings.

By Tsvetana Paraskova for Oilprice.com

More Top Reads From 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