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Strategies & Solutions for Geopolitical Risks in Commodity Trading

Current Approaches to Geopolitical Risk Management in Commodity Trading

In the complex world of commodity trading, navigating geopolitical risks is paramount. Geopolitical events such as political instability, trade wars, and regulatory changes can have significant impacts on commodity prices and supply chains. Currently, managing geopolitical risks in commodity trading involves human-driven assessments, data collection, and decision-making. Analysts and risk managers monitor global political events, gather information from various sources, and assess potential impacts on commodity markets. This process includes scenario planning, compliance reviews, and periodic documentation. While effective to a certain extent, human involvement can lead to operational inefficiencies and limited access to real-time insights, especially during critical events such as sanctions or embargoes.

Transforming Geopolitical Risk Management with Value Creed

To address these challenges, we leverage Endur capabilities for managing geopolitical risks in commodity trading. We offer a range of key services, including risk assessment, system customization, data integration and visualization, scenario analysis, compliance assurance, training, ongoing support, and strategic advisory services. The overarching goal is to enable organizations to proactively navigate and mitigate the impact of geopolitical factors on their commodity trading activities.

One notable component of our solution is the development of a “sanctions desktop” within the ETRM system. This desktop facilitates the management of commodity delivery affected by sanctions, such as pipelines, zones, and locations. A scheduled task update impacted trades, triggering a Trade Process Management (TPM) workflow for risk mitigation. The middle office approves risk mitigation strategies, including options like accepting, transferring, mitigating, or avoiding risk. Further TPM workflows are configured to handle specific risk scenarios, such as accepting risk for current-year deliveries while terminating future-year deliveries as part of long-term contracts, or novating deals to a middle party to transfer risk. This comprehensive approach ensures efficient and effective management of geopolitical risks in commodity trading. In addition to these services, we also

Build a fixed effect regression model with lag explanatory variables to test the impact of the geopolitical risk index on the energy imports/exports portfolio of the client. Trade cost factors involved – Distance, Transportation Costs, and Taxes.

Apply models to interpret mediating effect analysis (replacement fuels (coal vs gas, gas vs power)), running simulations on the cost to deliver based on different clauses of cargoes (FOB vs DES), heterogeneity factor attribution to the delivery/sourcing locations introduced by their national attributes (OPEC vs non-OPEC, embargoes, etc.), social events (COVID-19), etc.

Analyze historical geopolitical events and map potential risk scenarios.

Examples of Customized Blotters for Sanction Management

Key features of our Solution include

Traders and risk managers can make informed decisions to mitigate potential losses by running simulations and analyzing inventory value changes across different scenarios.

Our solution enables users to monitor large datasets in real-time, identifying trends and making timely decisions based on market conditions.

We integrate with market data feeds to provide up-to-date information on commodity prices and geopolitical developments, facilitating enhanced decision-making.

Traders can simulate the impact of geopolitical events on their portfolios, helping them understand potential outcomes and develop strategies to navigate uncertain market conditions.

Automated processes such as Trade Portfolio Management (TPM) workflows and validations reduce manual effort, ensuring quick execution of trades and compliance with regulations.

Our solution includes functionalities for regulatory reporting, invoicing, and document management, ensuring compliance with regulatory requirements.

Benefits of Our Solution in Commodity Trading Businesses

The implementation of our solution has resulted in tangible benefits for commodity trading businesses:

130% Achievement of Supply PnL Targets

Schedulers were able to surpass their supply profit and loss targets due to effective solutions implemented on cMotion, simulations, and analytics reporting.

30,000+ Unique Combinations Processed Daily

With functionalities spread across multiple systems, the risk of a single point of failure is minimized. Each module can be independently upgraded or maintained, reducing downtime and minimizing disruptions.

$1.5m Reduction in Value at Risk (VaR)

Effective risk management strategies led to a significant reduction in VaR over six months, enhancing the financial stability of the organization.

80% Reduction in Manual Work

Introducing User Defined Windows (UDW) and automated workflows reduced manual work for the front office desk by 80%, increasing operational efficiency.

95% Overall Efficiency Increase

Automation of reporting processes and operational services led to a 95% increase in overall efficiency, saving time and costs.

Empower Your Commodity Trading Success with Value Creed

Value Creed combines human expertise with advanced technology solutions, to provide traders and risk managers with the necessary tools to navigate uncertain market conditions successfully. Our solution offers tangible benefits, including increased profitability, operational efficiency, and compliance. Through comprehensive risk assessment, system customization, data integration, and ongoing support, we ensure that organizations are equipped to make informed decisions and mitigate risks proactively. By leveraging our expertise, businesses can navigate complex challenges, optimize their trading strategies, and seize opportunities for growth and success.

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