For a growing number of oil traders, there's a new math at work in the traditional career calculus: why take the stress, long hours and uncertainty of a Wall Street job when the easy money is in physical trading?
While investment banks and hedge funds nurse the painful wounds of constricted credit markets, lessened liquidity and more restrictive remuneration schemes, oil majors like BP (BP.L) and independent traders like Vitol are raking in record profits by filling up storage tanks or exploiting global arbitrage.
The shifting jobscape is causing at least some to reverse a career path that in the past would have begun at a global oil major, possibly pausing at an independent trading house on the way to a Goldman Sachs (GS.N) or Morgan Stanley (MS.N) seat.
Though it's not clear that corporations will be able to match the compensation that banks offer, I've heard several people say that they are thinking hard about whether the work/life trade-off is worth it with reduced remuneration, said Andy Awad at Greenwich Associates, a consultancy that conducts annual studies of the Wall Street commodity trading sector.
While the flow is unlikely to become a torrent, it could bring about considerable change: oil companies and trading firms may find themselves better able to challenge the banks in the area of offering third-party risk management; the banks may find themselves increasingly struggling to trade in physical markets, which have proven to be a cash cow this year.
In one regard oil companies and banks are already growing marginally more similar: Many oil companies took more risk on their energy trading desks last year, while many of the biggest investment banks took less, according to corporate filings.
REVELLING IN CONTANGO
Fortunes have changed dramatically from a year ago.
U.S. banks now face a major overhaul of over-the-counter derivatives regulation that could crimp their free-wheeling style, while oil companies and trading houses are raking in windfall profits from the market's contango structure, in which low prompt prices and higher long-dated prices allow them to make money simply by storing oil in tankers or onshore.
Whether the roughly $500 million contango-related profit boost to BP's first-quarter earnings can be sustained is open to debate, but the British giant has been reinforcing its trading unit, which was pared sharply in recent years.
BP last month hired Henrik Wareborn -- who had run Lehman Brothers' European commodity trading team since 2005 -- as its new head of global crude trade, sources have said, digressing from the standard oil industry practice of promoting from within.
It also hired ex-Goldman energy marketer Priya Bhandari for its risk management arm, the website SparkSpread.com reported, and has hired Giovanni Serio, part of the Goldman Sachs research team, a trade source based in London said.
I'm always interested in good people. Given what's going on in the industry, some of these traders may see BP as a more attractive place, Timothy Bullock, chief operating officer for integrated oil supply and trading at BP, told Reuters last week when asked whether more bankers were seeking industry jobs.
Bankers have also moved to independent traders like Vitol, Trafigura or Hess, which operate with fewer restrictions, far less scrutiny and far more physical assets than most banks.
SHAKEN MASTERS OF THE UNIVERSE
The biggest impact may be felt by Goldman and Morgan Stanley, which face their most serious challenge to decades of commodity trading dominance after the woes of last autumn, when they surrendered their investment bank status to survive.
Both lost market share in the business of hedging commodity prices for corporations last year to aggressive up and comers like JP Morgan (JPM.N) and BNP Paribas (BNPP.PA), according to a Greenwich Associates survey of 362 companies released in May.
But for the independent middlemen and cash rich corporations that deal more in supertankers and storage tanks than swaptions and dollar/commodity spreads, times have rarely been better.
While liquidity in derivatives markets has only now begun to recover from last year's collapse, traffic in the physical markets required to move crude oil from Nigeria to Houston, or diesel fuel from South Korea to Europe, barely missed a beat.
We have seen an immense movement of physical players from the financial markets into the physical markets, says Victor Peeke, director of recruitment firm Prime Energy Partnership.
This has emboldened oil companies to take a bit more risk, based on Value at Risk (VaR) metrics reported in the companies' 20-F SEC filings, a measure of how much money the trading desk could lose in a day, up to 95 percent or higher probability.
While an inexact measure that traders say can be highly subjective, the VaR figures show firms including Royal Dutch Shell (RDSa.L) and Chevron (CVX.N) increased their risk.
For a graphic of VaR for banks and oil firms click:
By contrast, many banks pared the amount of money they wager on commodities last year, with the notable exception of a big increase at Goldman Sachs, according to their SEC filings.
But bankers making the move may be the exception rather than the rule, and the talent arbitrage window may not last for long.
Investment banks are rapidly finding their feet again, and competition for top talent remains fierce in a market that remains a relative bright spot compared with other asset classes.
I believe there is a window of opportunity at the moment before the U.S. banks hand back the government money and before the European banks get their risk appetite back, said Tom James, an independent consultant and long-time commodities risk management executive.
But the U.S. banks are handing money back faster than I expected, so there may only be another 12 months.
And not all companies will be ready to welcome them back.
We're getting calls almost every day, they're all looking to come back, said one senior trader with a major global oil firm, a sentiment echoed by several of his peers at other companies. But for us, the culture clash means it's unlikely to work.
(Additional reporting by Chua Baizhen and Ikuko Kao; Editing by Michael Urquhart)