The closing down of Houston-based hedge fund Centaurus Energy Master Fund in May by its founder John Arnold in the light of low gas prices is indicative of the current situation in the gas trading market. “John Arnold is the guru [of gas trading], and if he is walking away from it, it is [a] sign,” said Melillo.
For energy trading, crude oil and spread markets are seeing more active hiring, Melillo said.
At the same time, petroleum engineering and geoscience professionals are in high demand, he added. There is a surge in hiring in the areas of midstream transportation and storage, as well as the service side for the upstream, such as drilling pad development, refinery construction and shipping services to deliver oil and gas from production sites to refineries, he said.
According to Melillo, the key reasons for the “continued dwindling down of the trading market” are low volatility and low gas prices. Added to that is regulatory uncertainty due to financial reform under the Dodd-Frank Wall Street Reform and Consumer Protection Act, he said.
In addition, less capital is available to hedge funds for trading, and the size of hedge funds is becoming much smaller, Melillo said.
Andy Nybo, principal at Tabb Group, said one of the reasons for decline in energy trader hiring is because Dodd-Frank will increasingly require clearing of over-the-counter swaps. OTC markets are traditionally manual and therefore more labor-intensive, because the “OTC trader is a trader with expertise who knows who is buying and who is selling,” he said. Due to Dodd-Frank, the swaps market is transitioning to become more automated, with fewer individuals involved in the process, he added.
Another reason behind the downturn is “economic malaise,” as energy prices trend lower, he said.
According to Nybo, the end of 2012 was a peculiar period when trading firms on both the buy and sell side, as well as hedge funds and proprietary trading houses, chose to close their books and walk away in order to start again in the new year due to uncertainty caused by US elections and the “fiscal cliff” situation. “Trading volumes in third and fourth quarter have declined precipitously,” he said.
Heather Leverett, a partner with Houston-based Optimus, a recruitment firm that specializes in hiring commodity traders, said she agrees the demand for hiring traders is down, and the primary reason is a lack of volatility. “Lack of potential return combined with increased overhead — reporting, process and technology requirements related to Dodd-Frank — creates an environment where hiring additional traders at a decreasing return would not make sense.”
According to a recruitment firm eFinancialCareers, commodities, trading and hedge funds were the top three fastest growing categories in 2011. Yet in 2012 these categories were “among top losers” in terms of new job postings.
“The number of positions listed in the hedge fund sector dropped 48%, while commodities positions saw a 47% drop-off. The only sector to do worse was derivatives, which is down 49% compared to last year,” according to an eFinancialCareers press release.
According to the firm, positions in compliance rose 8%, along with some growth in information technology and risk management.
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Source: Inside FERC’s Gas Market Report (18-Jan-13), written by Anastasia Gnezditskaia