It’s A Small World
Small World

Over seven billion people have their attention focused on the Russian-Ukrainian war. And over seven billion need food and energy to survive. So, let’s take a look at the key components: 

 

Commodity 

Production/Export  Russia 

Ukraine 

Wheat  Production  3rd   9th  
  Exports  1st  5th  
Crude Oil  Production  3rd  61st  
  Exports  2nd  Not in top 25 
Natural Gas  Production  2nd  36th 
  Exports  1st  27th 

 

And we can add metals and other agricultural commodities to the list. Afterall, the impact of the war on commodities has been felt around the globe. We’re not going to talk about the war or its impact on commodities for the general population. Let’s focus on commodity trading companies and how their risk appetite is being stretched. We are going to segment this into three categories. 

Physical Exposure and Credit  

For the companies who were/are trading with Russian firms and have taken a stand against it. Their worries are focused on hedging their physical exposure and any open credit/payments that need to be mitigated. Risk managers ought to run scenarios where all forward contracts are valued at spot market as well as credit exposures. 

Niche / Single Asset Class Trading Companies  

Those that are either Energy (even within that crude only or crude and gas both or refined products/NGLs etc.) or agriculture trading firms. For them, in addition to the credit and hedging risk, the need for production challenges and pricing volatility has them scrambling to run their portfolio through scenarios. 

Multi-Asset Class Trading Companies 

Such organizations that trade everything under the sun and they have the biggest, most complex impact. It’s not just that one commodity asset class is impacted. Their portfolio is complex and for them to study their risk, they need to run a correlated scenario analysis. As we have seen how the Rouble has plunged against USD and trades that are being priced or settled with Rouble exposure will require the traders and risk managers to have an insight into their portfolio based on not only what happens to it if price/volatility goes up/down or FX movements individually but also a correlated impact. 

It’s important for traders and risk managers to have appropriate tools available to them to be able to run such scenario analysis. CTRMCloud is one such platform that provides the ability to not only create shocks based on various parameters (price/volatility/FX) and study the impact individually, but also a cross impact. 

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