YouSaid · the spoken record

Javier Blas

lines on the record: 50
first: 2022-05-02
most recent: 2022-05-02
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Look, I have had a great time every time that I have been in Iraq. It's one of my favorite places. Baghdad is a great place. I have favorite restaurants in Baghdad and things like that. I mean, you get to travel a lot to the Middle East and Iraq and Iran are kind of favorite places. But also you need to get used to from time to time to get deported for a few countries.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I mean, you know, you are a commodity reporter, you envisage in a lot of countries that they are not the traditional holiday destination. My dad used to say, so you look at the list of countries and the foreign office recommend not to travel.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“The kind of the hard way. I mean, you need to be prepared to go to live in somewhere quite distant. This is not, if all what you want to do is be sitting in Mayfair in London or Wall Street here in New York. That's not the business for you. You have to be willing to go to Kinshasa in the Democratic Republic of Congo and know everyone there, know the president, know your ways to get the copper and cobalt out of the country.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that language skills, you have to have a sense of adventure and be willing to live in the middle of nowhere, travel 250 days a year, take quite a lot of personal risk. There is a commodity trading house called Olam, which is based in Singapore, and the CEO is a gentleman called Sanny Berges. Mr. Bergese started in Nigeria. So he still sends all the jump traders up country in the middle of nowhere for a couple of years so they learn the business.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“It's like a coffee. It's like coffee or cocktails. You kind of, you know, you mix. So it's when Russian oil is not really Russian oil. I mean, for some companies, they will say that as long as 51% of the oil is from somewhere else, the other 49% could be Russian. And then they invent all these names, which are kind of cocktail names, Latvian blend or many stunny blend to avoid calling it 49% Russian.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Public pressure has led to so many players to say, even if this is legal, we are not going to touch it. I don't know, this is an era of social media where public pressure goes quicker to companies. But in the past, I will have expected a lot more companies to continue dealing on Russian oil with no problem. And we have seen a number of companies just taking step back. And the companies that try to use the old tricks like do blending and things like that, getting name and shame, and very, very quickly say, oh, yeah, our mistake, we're not going to do that.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Couple of things. I have been struck by how little regulators in this day know about the industry. The fact that a lot of them seem to be completely in the dark of what's going on and who are the big players and how things work, considering that we have had several YPA calls, I will have thought that regulators will have really getting up to speed onto that. And that is really concerning because I'm not a big believer that you need super extra heavy regulation on commodities, but really concerns me when regulators and policymakers basically have no idea what's going on. That remains a surprise. The other one on the other hand has been self-sanctioning.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“It was quite interesting. I was recently speaking to a senior executive of a Middle East company about would you want to get pay in Yuan? And he's not a friend of the United States, this particular gentleman, but he said, and then what do we do with the Yuan? Get paid with the yuan, it's not properly convertible. We can pay for Chinese goods, but do we have enough demand for Chinese staff? And they may not like the dollar, they may not like policies with the United States, but they know that the moment that they have the dollars, they can't convert that to anything that they want. They can move it around, et cetera, et cetera.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Depends on what we are talking about. If we are talking about pricing the commodity in a non-dollar currency, then I think it's a big deal. But a lot of what we are talking about is about invoicing. The commodities in dollar, but you switch. You are pricing dollars, but when you transfer the money, you wire the money in a different currency, which is a very different thing from non-pricing in dollars. Look, I do think that it does have an impact. Obviously, there are a number of countries that they try to reduce their reliance on the dollar.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, commodity traders feel that demand is outstripping supply and that the only thing that could bring down the market So, can you reduce commodity prices via interest rate hikes? Yes, but at the cost of killing the economy. But if you are going to achieve the soft landing, I don't think that you are, I mean, the demand is going to be still there. I don't see how that's just going to reduce inflation. I mean, nothing that the Fed can do other than killing the economy can bring more oil or more coal or more wheat. I mean, you know, that just, we have a problem with wheat supplies right now because we have lost the number one and number three supplier to the wall. And the ECB, the Bank of England or the Fed cannot do anything about that. I mean, you know, higher interest rates are not going to produce more wheat and they're not going to produce more oil. But, you know, interestingly, interestingly, this is the statement of the obvious. Right now, the global economy faces much higher energy costs, much higher food costs, and higher cost of money.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Everyone Everyone is out of coal finance. You could not get a bank to finance a coal mine. And some of the coal companies I speak to the CEOs and say, well, you are not now announcing a big expansion and so on because he said, if I announce that we are expanding production capacity, my share price goes down 10%. That's the last thing that we have targets that we have to reduce. And the sad thing right now of the energy transition is that we have been talking about cutting emissions and reducing CO2 and so on. And 2022, we are going to see record demand for oil, record demand for natural gas, and record demand for thermal coal. And that's despite the fact that we have been trying to reduce reliance on thermal coal for the last, I mean, some people will say 150 years, but seriously for the last 20 years.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“The Russian invasion of Ukraine has been really the final straw on the market that has tightened things a lot. But the market was already tightened a lot on the run up. And one reason is that we have underinvestment in fossil fuels, in mining. It just generally has been seen as a dirty industry. ESG has kicked in. We're not having probably enough investment. I mean, here we are at unprecedented prices for coal. I mean, a good price if you have a coal miner a couple of years ago that $250 a ton, whether they will take it. I mean, they will sign a contract right now. Thank you very much. That's a great price. And the market is now at 400. And no one is building a mine. No one is opening up 400 million.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Potential default, but obviously that's draining a lot of liquidity from exchange. We have seen liquidity in the oil market at a six, seven-year low. That's not coming back. At times, the oil market, I think that I said that the bid has spread on WTI, which usually is no more than one cent. There were times that it was 78 cents wide, which I said, well, that's wide enough to put an oil tanker through. I mean, like, you could make eight ends of a dollar just basically arbitrary and be as spread on WTI, which is insane. It's gonna almost free money. Attitude toward.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“If the brokers go, what happened to, because then the brokers default to the exchange and the clearinghouse? What will have happened to the clearinghouse? The exchange said that the clearinghouse will have survived, but we don't know the reality. And what will have happened to some of the banks, which are behind the brokers? I mean, the financial consequences could have been significant billions of dollars of losses. And, you know, a lot of the risks today, we have moved the risk out of OTC markets into clearinghouses. And, you know, we don't know, and this was a test. I mean, having to cancel the trade is a massive decision. I mean, my worry is my bond. I have a trade. I have a contract, and that's done. And those contracts were evaporated in minutes. There's changes, reactions so far is to increase margins and trying to make sure that the buffer on the clearinghouse is there for a”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“My gosh, we got very, very close to disaster with LME. I mean, the LME have not shut down the nickel market and then cancelled the trades, which is extremely controversial decision. And many people on the market will say illegal decision. And this is going to be lawsuits, et cetera, et cetera. But this chains have been quite open. four or five brokers will have default that morning. The market was shut down at 8.15 in the morning and the trades were cancelled at 8.15 in the morning. Margin calls were due at 9 We can say that four or five big brokers at the LME were 45 minutes from going very up.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, the response from these changes have been to increase margins massively to everyone, and particularly not just variation margins by initiation margins. It's very expensive right now to put a trade on energy commodities, oil, power, gas. It just have got very, very expensive. I think that the reaction from these changes have been...”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Areas where it's very difficult to move the oil out where prices went negative and some of the commodity traders were taking the oil. I mean, mercuria, a big oil trader who takes oil in some areas of the US, which are locked down with very difficult access to pipelines and so on, was buying at negative prices for about two weeks.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“There were some commodity traders certainly buying oil in Cushing. And by buying, I mean getting paid to take the oil. There was not a lot of it. And, you know, the reason that we went negative was a lot of technicality around the contract and probably some people pushing the market at closing in the right direction for their positions. But yes, there were commodity traders who that day. And not only that day, I mean, on the physical market in the US for a few weeks before the WTI went negative, we have domestic grades on kind of”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“The commodity traders have benefited a lot from the movement by everyone to just in time. They were the ones who were holding inventories for everyone else. And they made money from that. I mean, a lot of companies, they didn't have to carry inventories. The inventories were in the hands of the traders. The traders were financing those inventories. So a lot of chief financial officers of companies that need resources were very happy not to carry those financing costs. All of a sudden, you realize that just-in-time may not be a great idea. And if you are a company that needs a lot of aluminum or a lot of copper, you may want to move from relying a bit less on the commodity traders and controlling a lot more of those inventories, which is really bad right now because we have low inventories everywhere. Supply is struggling with demand, and we are having is a number of companies building their own inventories right now at the worst possible time, which is exacerbating.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that what you may have some vertical integration is companies have come to realize now that they need a particular supply that is critical for their business and no one is investing, they may have to do it themselves. I mean, Tesla is kind of a good example of this. I mean, Alon Monz is talking about the shortages of lithium. So you could see at some point Tesla having to go into mining lithium or co-investing with some traders into that because in effect, you have a market failure. So you may want to integrate. The one thing that I see, which is not vertical integration, but is...”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“It happened mostly around the 70s, 60s, and 70s, and oil was particularly the one that broke down. I mean, it was a time where everything was vertically integrated in the oil industry. Exxon oil, Exxon oil fields will produce oil. They will put on Exxon pipelines into Exxon-Own tankers, to Exxon refineries and to Exxon gas stations. And that broke down for a number of reasons. Very importantly, nationalization of the oil resources in the Middle East and North Africa through the 70s. The commodity traders, when the Middle East countries nationalized the oil, all of a sudden, those countries who have never sold their own oil have plenty to sell and they needed someone to help. And that came the oil traders who became the big intermediaries. And the industry has really broke down.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, you understand why the Fed and the ECB were terrified. At that situation, but on the other hand, while both the ECB and the Fed have said no, I think that they're very aware that there could be a situation in which they may have to because the financial health of a number of European banks is at risk. But the political consequences of having to bail out these guys are terrifying.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“You mind what the hearing in Capitol Hill when they ask, you know, German Powell and Secretary Jellen, why you bail out these guys?”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“In which a central bank effectively has to bail out a commodity trading house and the central bank is either the Fed or the ECB and you are bailing out a commodity trading house which is involved in shifting Russian oil which is more or less against what the company”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Banks who have branches on the highest street in Europe have two, three, five, six billion dollars of exposure, and you don't know what is anyone else going to come down, the industry gets under massive stress. I think that we can get into a position in which central banks may be use into act and supporting the industry. But it gets complicated because a difference of a lot of the banks, a lot of these commodity trading houses are not even incorporated in Europe. You are going to be bailing out companies that are in the British Virgin Islands, in Dubai, in Singapore, and companies also that you could discuss whether what Lehman Brothers or Bernstein were doing were good for society and so on, but these companies, a lot of the trouble that they are getting now is because they are trading Russian oil, which goes, so you see mine as it's...”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, I think that the central banks have looked into commodity trading recently and they found two things that I think that they didn't like. One, the Bank of England was rather candid about it. They put a position paper just indicating that they could not really even understand what was going on because of the opacity of the market. And, you know, to see a central bank recognizing publicly, we look at this, we found it to be very opaque, so we don't really know what's going on. It's rather concerning. Both the ECB and the Fed say, well, the threshold for intervention of an unregulated market, as they call it, is very high. And the Fed using Fed speak effectively told the industry.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“When I recently was speaking to people on the regulatory wall and say, well, you could create a registry and they were absolutely bemused that I indicated, look, look at the G7 1979 communique was the summit in Tokyo. It is there. It says, we agree the G7 agrees to create an international database of trades. And they were like, well, that will not happen now. It's no way that all the countries will agree.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Because they don't talk to each other, they keep everything secret, and because there is no one that they need to report all of these transactions, there is not a registry. If you are trading on the financial market, if you are buying oil futures or options, all of those trades are registry someone. There is a trade repository. The CFTC could look into it. The Fed can look into it. If any indication of wrongdoing, someone can go and see exactly who bought what at what price with whom. On the physical market, you could buy oil, metals, agricultural commodities, and you do not have to disclose anything. There has been a term, I mean, in 1979, the G7 agreed to create an international repository of oil physical deals. And of course, what is now 43 years later, we are here, and that has not happened because opposition from the industry.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“And you are on the high seas. Literally, you are almost, the only rules there is the United Nations Convention of the Seas kind of piracy level. So you don't have any regulation. And it's quite interesting the things that you could get away or you could almost get away until very recently. For example, if you were incorporated in Switzerland and you decide to bribe someone to get business, a businessman overseas, not only that was considered legal until very recently, but it was tax deductible. So the Swiss were rather accommodative to what the commodity traders needed to do. And on the book, we tell the story of some commodity traders telling us that they were traveling to London with half a million pounds on their briefcase to make payments to people. I mean, they call it commissions, but those are brown envelopes.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“You put it on the shape, and there is no regulation, and sometimes there is nothing even a single country because you may not even buy the oil from the terminal. You may buy the oil on the high seas from sometimes two oil tankers get together. We call it ship-to-ship transfer. They get together on the high seas. They can move the oil from one tanker to the other.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“You could do whatever you please. And, you know, this happened. Just in mind that that trade that we in mind, you know, buying a barrel of Russian oil and delivering it into rotter, then you will encounter not a single regulator other than on the financial side. On the financial side, when you are putting your hedge, you will have the CFTC looking at you, what you are doing. But on the physical side, there is absolutely nothing. You get the oil.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, using the example that I gave you, Joe Commodities Incorporated, well, you have no regulation. No one is looking at you.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, the diesel market, I mean, I have been warning that we are talking a lot about the problem in the oil market, the crude market, but where real tiness is what we call the middle of the barrel when it's refined. That's diesel and jet fuel. And we have very little of it because consumption is booming, because Russia produced a lot of diesel. What's happening there is that on commodity markets when you are on the futures market, at the end of the day, some of those contracts are still physically deliverable. You take a loan or short position and you may take or have to deliver the commodity to the exchange. Inventories of diesel in the east coast of the United States are at the moment at the lowest seasonal level since”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Need the boat and you need also a bank who's willing to finance that, or you need to have the equity to finance this operation on your own balance sheet. And then, I mean, but here's the question, will Joe Commodis incorporate it on the British Virgin Islands want to get involved in this? Will you want to be trading rascan oil? Many people will say, no, I don't want to do anything with Russia, but a lot of the commodity traders say, well, we are not involved in politics, we are above politics, and we are here about making money. And it's legal to move the oil. So we are going to move it. And they're obviously making a lot of money.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“And this is an industry where making 50 cents on a barrel of oil is a big profit. And all of a sudden, you have $30 profitability options. And that's what they are doing. I mean, you see the same traders who are buying Russian oil at a discount of $35. They are selling it to India at a $5 discount.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“You are right, the banking financing is gravitating towards the big players because the banks feel that they have enough equity to withstand the volatility. And the smaller, medium-sized traders are really struggling to get support from the banks. The opportunity right now, you can make it through. You can weather the volatility. You could make a ton of money in this market. I mean, think about Russian oil. The flagship of Russian crude is something that we call URALs. That is selling around $35 discount to brand, which is the main benchmark. So if you are a commodity trader, you could buy from Rosnev oil at a $35 discount, put it on a boat and ship it to India where you could sell it at $5 discount. You could make 30% margin on a barrel of oil right now, which is a lot of money.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“They have executives. I have been in Libya during the civil war and the hotel lobby where it was an interesting combination. You were in Benghazi. The front line was not far away. There were checkpoints on the city everywhere. And it was a hotel where it was kind of the hotel to be in town during the Libyan War. And the people who were living in that hotel were a combination of a few diplomats cultural attaches of those diplomats, meaning the spies, a few war reporters, and then the commodity traders buying Libyan oil to put it onto the global market.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“The word that Jack and I use on the word for sale on our book was you have to be a bit of sharpling. I think that that probably is a nice way to say buccaneer or mercenary. But look, the commodity traders made a lot of money over the last 30 or 40 years helping Saddam Hussein to bypass UN sanctions, helping Upper Head South Africa government to get oil, helping Fidel Castro of Cuba barter sugar for oil and keeping the communist revolution alive. And they never have a problem whether it was a communist regime of a right wing regime. The same commodity traders that were helping Castro were dealing with Pinochet in Chile to sell the copper. But you need to have the appetite to go to where no one goes. I mean, when I said earlier that these commodity traders are often in war zones, they are.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Very good point, and indeed, at some point, Goldman Sachs and Morgan Stanley were big physical traders. They were moving millions of barrels a day of crude and refined products. Goldman Sachs pre-IPO owned an oil refinery in Rotterdam. Morgan Stanley was a big trader of all kinds of commodities, including metals, agricultural, et cetera, et cetera. But over time, this business gravitated to privately own independence because you have to go to difficult places on earth, places that usually regulators will not like banks to be there. And because over the years, the good money on commodity trading has been made in operating on those kind of, what is the nice word, gray areas.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“This is the time that everyone should be hedged as well as they can because the market is moving in huge price increases. I mean, we have seen Brent Crude, a market that for many years have never traded more than $30 or $40. We have seen price movements of $30 to $40 in the space of a week. You are not hedged, the market could kill you. But you are absolutely right. My suspicion is that a lot of the trading houses have reduced significantly the hedging just simply because they cannot afford it, which is extremely risky. And that's what could bring a company down.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“When all of this is not just one tanker, but hundreds of tankers a day floating around and billions of dollars on borrowing is when it gets very difficult and when some of the companies reach the limit of how much they are borrowing from the banks, that is when the banks say we cannot continue lending to you. And that's where we saw the lobby group of the European energy traders go to several central banks and saying we are running out of liquidity. We have a big problem. Marking calls are effectively killing us.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“The margins, this change is going to start demanding significant variation margins on that short position. And then you have this cash flow mismatch. You have not yet delivered the oil. So you have not really cash in your long physical position. At the same time, you're short on the paper is massively underwater. You are getting the margin calls. So you are going to have to go to another bank and say, please, can you give me some money? Can I borrow you money because I need to pay to this change?”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Of the money, and then you will, at that moment, you own a million barrels of Russian oil, so you are lone physical. You want to protect yourself because you don't want to see a price drop hurting you. So you will take a short position on the futures market to make sure that you are hedged. Long physical, short paper, everything should be fine. And then you get a vessel, which is complicated because there are not many companies who want to go to a Russian port to pick up the crude. You will have to deal with all the operational. Sometimes there is bad weather and you cannot send the trip. So it gets complicated on that. Say that you get everything right, you get the oil into the tanker, and then you move it to Rotterdam. You try to discharge into a refinery. But in that period, just in mind that the price of oil goes to 100 to 150, you are going to be making, you are fine because you are hedge. But obviously.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“They have all kinds of different borrowing facilities from revolving to bilateral deals to just ad hoc for a transaction. But a typical transaction right now will be buying Russian oil, which is still legal if you are moving it into, say, the Netherlands, Rotterdam is the center of the European oil industry. So say that you are a trading house, jomities incorporated obviously on a tax haven because all of these companies are incorporated on some places like the British Virgin Islands and similar. And you are buying a million barrels of oil from Rosnev, the Russian state control company, you will have put, that's going to cost you around 80 million dollars because Rosnev is selling a big discount to the market. You probably are going to put perhaps as little as five million dollars of your own money and you're going to go to a bank and you are going to borrow all the rest.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Also, because of all the volatility in the futures market, if you are hedging that operation on the futures market, you mean that you are long physical, you are short on the paper side, the price continues to go, so you are getting hit by margin calls. And those marking calls could get very high. We have seen some commodity trading houses getting a billion dollars a day of additional variation margin calls. And that combination has really put a lot of pressure on the finance of some of these companies. As I said, for the starting point, they don't have a lot of equity and they rely on banks. And banks are really, reaching the limits of how much money they can lend to them.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, BMP Paribas was the largest lender to the industry. It just decided a few years ago to shut down the business after they got involved in some bad case with the US Department of Justice. But we are talking about the likes of Soci ⁇ t ⁇ General, of ING, Credisuis, some Unicredit of Italy, that kind of European banks. Well, when commodity prices go through the roof, as has happened in recent days and weeks, two things happen for the commodity trading houses. First of all, they need to borrow a lot more money because a barrel of oil is more expensive. So if a barrel of oil a year ago was close to actually almost negative, but you know, say that it was $25 and you were moving a million barrels of oil on a super tanker, you needed $25 million to borrow. Today at more than 100, it means that you need 100 million dollars. So the borrowing needs have increased significantly.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, the first thing to understand, which is very important, is that physical commodity trading is a highly leveraged business. These companies operate within equity and they borrow money from banks. And these are not typically borrowing from Wall Street banks. They are borrowing money from commodity trade finance, which are the typical European bank where you may have a mortgage. Actually, my mortgage bank for my flat in London probably is a big financier of the commodity trading houses. So these are not the big. Borrowing money from European commercial banks”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, that's exactly what they do at times, that is very complicated because, well, you know, you are dealing with all those logistics, you are dealing with all that risk, and because you actually have to put a lot of money at work. The size of the business, I mean, some of these companies, they have turnover of $300 billion, 400 billion dollars a year, which is a mind-blowing number. And obviously they don't have the profits equivalent to what Apple or Coca-Cola or Amazon will make if they were having those sales. But the size of the turnover is just amazing because of the volumes that they move. I mean, bitle, which is the world's largest oil trader, moves enough oil to supply five or six of the largest European economies.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“In terms that some of these commodity traders are often operating on war zones and you still need them to get the commodities out and they get pay very well for that service.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, yeah, you are absolutely right. Need a commodity traders because commodities are not produced generally where they are consumed, so you need someone to take the risk of moving the stuff from A to B, and that's the role that the physical commodity traders play. I mean, these are not guys who are betting on the futures market or the options market behind a screen. These are guys who go into upcountry, as we call it, and mining the DRC deep into Africa, Peru, oil fields in Iran, and they get the oil, they put in a tanker and they transport to the consuming markets and they finance all that process. They deal with all the logistics, which are mind-blowingly complicated in some cases. The main reason is because commodities are not produced where they are consumed and they need someone to intermediate that risk. And that's quite a lot of risk. It's financial, it's logistics, it's credit, it's operational, it's weather is risk.”
2022-05-02 · Odd Lots · Javier Blas Explains How Commodity Trading Shops Really Work · IDENTIFIED FROM THE TRANSCRIPT · source