The biggest change in Energy for 2014 has nothing to do with Energy

US oil and gas production is exploding and has already surpassed Saudi Arabia at the end of 2013.  Researchers just found a new way to split hydrogen from water using sunlight.  Telsa’s electric cars are so hot that you have to place an advance registration for their new model.  Surely one of these headlines gives us an indication of the biggest changes ahead for Energy in 2014, right?

No, those are all interesting stories, but the biggest story for energy in 2014 is the exit of the big banks from oil and commodities trading.  JPMorgan has announced they are getting out.  Deutsche Bank got out December 5th, and Morgan Stanley announced this week that they were selling off a big chunk of their global oil trading business that stores, trades and transports oil products to Rosneft.   For now it looks like Goldman Sachs is one of the few holdouts sticking to their long term positions in commodities built around their J. Aron unit. 

This may sound like banks are just continuing to unwind from businesses they probably should not have been in as a fall out from the financial crisis, but I believe it has more to do with the end of the commodities boom.   From steel to copper to iron ore global commodities are off their peaks and while oil is off it’s historical peak it has held up better than most of the other global commodities.

From the chart below we can see that “speculators” long positions on oil futures are at an all time high with over $30 billion bet on oil prices rising.  

So with so many banks exiting due to a combination of new regulations like the Volcker rule and the Dodd-Frank Commodity Exchange Act, and the air coming out of the ballon on most commodities it seems likely that these bets on oil could unwind quickly.

Price forecasts aside what is certain is that the rise of the banks role in how our energy is transported, stored, distributed, marketed, traded, and sold is ending.  This is a major reversal of a 30 year trend that Goldman kicked off with most major banks following in the past decade and it will change the energy industry from how projects are financed to who profits from major price moves and supply disruptions.   So not as exciting as the potential to produce hydrogen fuel from sunlight, but for 2014 a much bigger story that will impact what everyone pays for energy in the years to come.