Pioneering innovative deals in illiquid oil and products markets

What sets Macquarie Group’s Commodities and Global Markets business apart from its competitors is its willingness to make a market in even the most illiquid of oil and related products, says Benjamin Davis, its London-based co-head of global oil. 

“What we’re really proud of is that we are market-makers. We’re not here to just back out risk straight away,” he says. “We’ll make a market on almost any product, even if there’s no liquid market. If the client needs it, we’ll find a solution.” 

The bank has an extensive global business in oil and products, trading physical and financial contracts across the crude and refined spectrum, as well as more than 100 financial petrochemical indexes, all the main biofuels indexes globally, and related environmental markets. 

That ability to make markets is based on the team’s deep commodity markets experience, says Andrew Kim, co-head of global oil alongside Davis.

“The world of oil products is very, very extensive, and we’re not afraid to take on some of the more esoteric or illiquid risk. Our traders are pretty well versed in their respective markets, and they are able to identify the components of risk behind an esoteric trade.”

For example, the firm recently transacted the first financial hedge of recycled polyethylene terephthalate, or r-PET. It also specialises in providing hedges that manage basis risk, whether against different locations or feedstock indexes.

“We’ve managed these sorts of risks for a long time, and we’ve got a good team of quants, a good team of analysts, and we understand the physical market, so we can take a bit of a view there as well,” Davis says.

Indeed, Macquarie is unrivalled among financial institutions in terms of its physical energy market presence. It trades some two million barrels a day of physical oil, liquids and refined products, as well as both financing and owning storage and logistics assets. 

Its presence in the physical and the size of its client book – the desk provides oil and risk management products for some 270 companies – also throws up opportunities to offset risk. “We have a franchise that is broad enough to often provide us with offsetting risk that comes in on the back of client flow,” says Kim.

It has also helped Macquarie support refinery clients with inventory monetisation transactions, where Macquarie takes temporary ownership of stored crude in exchange for working capital, says Davis. Such transactions have been motivated by refinery owners looking to best manage their working capital: “The market is interesting right now, clients are preparing themselves for the next stage of growth,” he says.

Macquarie’s edge in these transactions is the flexibility that it can offer in terms of the structure. “There is no one-size-fits-all for these deals. If the client wants help with the trading, or if they want us to take title to oil on water, or if they want us to be more involved in the logistics, we can help with all of that,” he says. “And because we have a significant physical trading business, we can intermediate with the physical players.”

The team is also looking closely at the first transactions in sustainable aviation fuel (SAF), as airlines begin to plan investments in production capacity. A growing number of countries have introduced targets for SAF use by airlines as they seek to reduce carbon emissions from the sector. 

“We’ve had clients approach us about SAF hedging, they want to see some price discovery,” Davis says. He notes that SAF prices fell by about a quarter in April, as growing gloom about the global economy softened demand expectations across the energy complex.

Longer term, SAF prices will be driven by a combination of input costs and demand from consumers, “and that’s going to be driven by regulation, which is somewhat of a moving target,” notes Kim. However, despite the Trump administration’s strong deregulatory stance casting doubt over interest in SAF among US airlines, he expects demand and market liquidity to increase.

For Macquarie, it’s important to be present when that happens, says Davis. “We absolutely want to make sure we have first-mover advantage when it comes to speaking to clients about new products [such as SAF] they’re likely to be exposed to,” he says. “It means that when a client comes to us asking for a hedge, we’ll be able to take that risk.” 

Macquarie Group was named Oil and products house of the year at the Energy Risk Awards 2025.