The world of Energy Trading and Risk Management is multifaceted, with each commodity presenting its own unique set of challenges. When it comes to liquid commodities such as crude oil and refined products, managing the intricacies of the market can be an uphill battle due to various reasons such as the high volume, fast-paced nature, complex logistics, diverse contracts, credit and risk considerations, and regulatory compliance. We’ve empowered clients to maximize Endur’s potential in liquid commodities space. Our expert team streamlines operations across front, middle, and back offices, unlocking value for your business.
In this blog, we will delve into some of the challenges that Liquid commodity traders face when it comes to managing their books in a ETRM system. We will also discuss, key functionalities of Endur and how we have leveraged them for our clients to optimize their liquid commodities business in Endur.
Effective Management of the Liquid Value Chain
Endur offers capabilities specifically tailored for the dynamic world of liquid commodities. From managing production forecasts, capturing physical deals to valuing inventory and everything in between, Endur empowers businesses to navigate the complexities of the liquid value chain seamlessly. With our expertise, we aim to educate our clients on how to leverage Endur’s powerful functionalities to optimize their transactional lifecycle, streamline operations, and gain a competitive edge in the market.
Let’s explore the key challenges of managing liquids in ETRM systems and how we assisted numerous clients in leveraging the Endur solution and empower their businesses to thrive in this fast-paced environment.
| ✔ | Production forecasts are crucial in liquid commodity trading, enabling efficient supply chain management, informed trading strategies, and risk mitigation. Integrating production forecasts into ETRM systems empowers companies to make data-driven decisions, optimize operations, and succeed in dynamic energy markets. |
| ✔ | We have used Endur’s Data Series module that provides the ability to model and analyze various forecasts and probabilities associated with deals. This has empowered our clients to make well-informed decisions and manage positions effectively. |
| ✔ | With global variance in equalization calculations rules, crude production forecasting can be hard to model with Endur’s OOB capabilities but with customizations that is also possible. |
| ✔ | Liquids market participants engage in diverse contractual structures for transportation and storage, including take-or-pay agreements and throughput arrangements. |
| ✔ | Furthermore, these contracts are complex to manage due to factors such as long-term volume commitments, price fluctuations, diverse shippers, and regulatory compliance. |
| ✔ | The interconnected infrastructure, force majeure events, and the long-term nature of contracts further add to the intricacies, requiring expert oversight and strategic planning to ensure smooth operations and adherence to contractual obligations. |
| ✔ | We have helped several of our clients use Endur’s customizable contract management modules to accommodate various complex contract structures in different regions, ensuring precise contract settlements and reducing contractual risks. |
| ✔ | In liquid commodity trading, counterparties can include various entities, from large corporations to financial institutions and small traders. For some of the medium and small trading shops, managing credit risk in liquid commodity trading presents significant challenges due to counterparty risk, short-term contracts, and logistics complexities. |
| ✔ | With a high volume of transactions occurring rapidly, assessing the creditworthiness of diverse counterparties becomes crucial to mitigate potential losses. |
| ✔ | Additionally, short-term contracts demand constant credit evaluations and adjustments to accommodate changing market conditions, while intricacies in logistics pose logistical challenges in ensuring timely and efficient deliveries. |
| ✔ | To navigate these complexities successfully, market participants must employ robust credit risk management strategies, real-time monitoring tools, and seamless integration with logistics operations to optimize their trading activities and financial stability. |
| ✔ | We empower clients with Endur’s robust credit management tools for better risk mitigation, including setting credit limits and enforcing blocks based on credit exposure. Our expertise enables accurate OTC derivatives credit valuation using overnight index swap rates, while also computing weighted credit exposure by facility, legal entity, and maturity bucket for comprehensive risk analysis. |
| ✔ | Managing liquid commodity trading is a complex task, especially when dealing with the diverse contract structures and intricate pricing strategies involved. The wide range of contract types, each with unique terms and specifications, demands a flexible system. |
| ✔ | Additionally, the complexity of pricing strategies, influenced by factors like geopolitical events and supply-demand dynamics, requires sophisticated deal modeling and real-time deal analysis within the ETRM system to ensure accurate pricing and risk management. |
| ✔ | Using Endur’s flexibility in deal modeling allows for customization of pricing and payment formulas for physical deals, providing traders with comprehensive and tailored solutions. |
Endur Liquids Management Lifecycle
High Impact
Medium Impact
Little/No Impact
Out of Scope
| ✔ | Logistics complexities in liquid commodity trading stem from high trading volumes, geographical dispersion, and diverse transport modes. Managing the movement of significant quantities across multiple regions and modes of transportation demands efficient planning and coordination. | |
| ✔ | Moreover, seasonal demand patterns introduce fluctuations in transportation requirements, while adherence to specific quality standards during handling and storage is crucial to meet contractual obligations and ensure commodity integrity throughout the supply chain. | |
| ✔ | Endur’s logistics and scheduling capabilities go beyond traditional systems. With the ability to handle regrades, blending, and redirection of deliveries, our clients have effectively managed changing market conditions and optimize their supply chain. |
| ✔ | ETRM systems need to integrate with multiple market data sources to access real-time and historical market data, including commodity prices, indices and other relevant information. | |
| ✔ | Consolidating and analyzing data from different sources can be challenging. Furthermore, liquid commodity pricing complexity arises in markets with less liquidity, where trader marks play a crucial role in determining accurate pricing due to limited buyer and seller availability. | |
| ✔ | Ensuring effective decision-making for traders requires a flexible and robust ETRM system capable of seamlessly managing and integrating data from various sources. | |
| ✔ | For non-liquid markets, Endur allows modeling of market values, though stress testing in such cases may require careful consideration. | |
| ✔ | Our clients have achieved their goals through our expert utilization of Endur’s capabilities, which include accurate fee modeling and the flexibility to replace default MTM pricing with more precise benchmarks based on intended sale or inventory locations. | |
| ✔ | Leveraging the Mark to Intent (MTI) approach within Endur, we provided multiple deal views, catering to the specific needs of various stakeholders within their organization. |
| ✔ | Capturing actual volumes into a system for liquid commodities presents complex challenges due to data accuracy, timing, and integration from multiple sources. | |
| ✔ | Timeliness is crucial to accommodate real-time and intraday trades accurately. Integrating data from diverse sources, handling quality specifications, and reconciling physical delivery and inventory management add further intricacy. | |
| ✔ | A robust system, along with effective data governance and validation processes, is essential to ensure accurate risk management and decision-making in the dynamic world of liquid commodity trading. | |
| ✔ | While some customization may be needed based on the business model, for one of the biggest pain points where the actual tickets need to be automatically associated to the right deal, Endur offers out-of-the-box functionality to autolink movement tickets. |
| ✔ | The liquid commodity inventory valuation in ETRM systems is complex due to dynamic pricing, different valuation methods, and quality adjustments. Fluctuating market prices and the need to consider specific quality specifications add intricacy to the valuation process. | |
| ✔ | Additionally, reconciling valuation with actual volumes after blending/regrading products, managing storage costs, and complying with regulatory requirements further contribute to the challenges of accurately valuing liquid commodity inventory within ETRM systems. | |
| ✔ | We have empowered our clients with effective inventory management solutions by harnessing the capabilities of Endur. | |
| ✔ | Through our expertise, we have guided them in implementing various inventory valuation methods, such as FIFO, LIFO, LCM adjustments, spot adjustments, and market value inventory, ensuring accuracy and efficiency in their operations. |
Master the Liquid Value Chain with Value Creed
With extensive experience in Endur implementation and optimization, Value Creed is committed to empowering our clients with the knowledge and expertise they need to thrive in the liquid commodities market. With Endur’s cutting-edge capabilities and our tailored solutions, our clients can unlock new opportunities, streamline operations, and make informed decisions. Partner with us today to discover how we can help transform your business into a dynamic and thriving force in the industry.
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