Digital Commodities Trading

Digital forces are rapidly changing the rules in the oil and gas trading sector by challenging traditional competitive advantages, reducing market inefficiencies that traders have long relied on, and lowering barriers for entry.

Big data and predictive algorithms expand the rigor of fundamental analysis and make results more accurate than ever, while information specialists provide structured data directly to trading systems. Computer analytics can process complex data in seconds, make targeted recommendations to traders, and even initiate trades on their behalf—all at speeds far exceeding human capabilities. Digitization is reducing commodity market imperfections, pushing commodities into a highly efficient, automated state that we call “hyperliquidity.”

BCG can help traders carefully consider their core processes and activities and determine to what extent each is subject to digital disruption. As digital technologies become more powerful, they will continue to transform commodity trading’s value chain—before, during, and after a trade:

  • Securitization. Instead of each deal being negotiated by commercial departments and commodity traders, financial products can be grouped, regrouped, and traded instantly.
  • Investment Decision Support. Commodity traders now have immediate access to new types of data that can help them understand future supply-demand dynamics.
  • Position Generation. Digital technologies are transforming position generation by allowing automated decision making that is faster and more precise, and by driving down costs.
  • Portfolio Management. Integrated, intelligent trading systems allow traders to perform much more realistic, path-dependent risk assessments as well as sophisticated scenario analyses instantly through available cloud-based computational capacity.
  • Execution. Intelligent trading systems can lower costs as well as make a company’s execution less obvious and optimize the trades so that they have only a minimal effect on the market price.
  • After the Trade. Most trading firms have also digitized their back-office processes to improve the quality of their posttrade reports.

BCG's Thought Leadership on Trading