Embracing volatility
A commodities broker doesn’t mind the risks that come with his profession.
In the summer of 1990, the forces of Saddam Hussein invaded Kuwait, oil prices skyrocketed, and a young college student’s life changed forever.
Javier Loya, interning at a crude oil brokerage firm to raise money for law school, became mesmerized by the earsplitting ambiance of ringing telephones and roaring traders in the run-up to the first Gulf War.
A decade later, the first generation Mexican-American launched a Houston company that, in the aftermath of Enron’s collapse, would eventually become one of the world’s largest commodities brokerage firms.
If the energy market is a casino, Loya’s OTC Global Holdings is one of the firms setting up the card games for gambling traders. No matter what happens to oil and natural gas prices, as long as they’re swinging up and down, Loya’s firm is always busy.
“We’re the guys setting up the game. For us, it’s all about the volatility,” Loya, chief executive of OTC Global Holdings, said in a recent interview. “Having grown up in this space, I know one thing for certain: Prices aren’t going to stay put. They’re going to move.”
Loya credits his parents, immigrants who moved from Mexico to El Paso after his birth, for cultivating his work ethic at an early age, and encouraging him and his six siblings to excel in school and sports.
At Columbia University in New York, he played football and had plans to attend law school before the go-go world of oil trading intervened. He said he’s glad he didn’t become a lawyer, but he still loves football and has held a minority stake in the Houston Texans since the team’s inception.
Loya recently spoke to the Chronicle about how his business has expanded alongside the U.S. shale industry. Q: How’d you get started in this business?
A: When I was a senior in college, I took a train out to Connecticut and interviewed at a crude oil brokerage. I saw a bunch of young guys screaming and yelling on the phone, and I thought, hey, I could do this. In 1992, the natural gas market was deregulated, so I thought I’d start working on natural gas. I joined two other guys from the firm, and we started a natural gas brokerage in Houston. Q: What happened when Enron collapsed?
A: Enron had become so big that it became, in essence, the natural gas market. Everyone had to go to them. We’re intermediaries. Enron told its customers you don’t need middlemen, just come to us. When that collapsed, there was still a need to move molecules, to transmit power and move crude oil. We exploded immediately. Month after month, we were breaking records.
Q: And eventually you started snapping up brokerages?
A: When we got to the point where we needed to compete with publicly traded brokerages, we needed to grow quickly and diversify our products. In 2007, we created a holding company called OTC Global Holdings and acquired boutique firms. Fastforward 10 years later, we have 20 different brokerages under our umbrella.
Q: How has U.S. shale oil and gas changed your business?
A: With the advent of shale, the U.S. is producing so much natural gas liquids and chemicals, so now there’s a direct correlation between products moving from here to Asia, so Asian markets have to hedge that risk directly with what’s happening in the Gulf Coast. We’re doing more with natural gas liquids, and it’s a very vibrant market. Five years ago, we weren’t brokering domestic crude oil to the extent we are now, and shale changed that. A lot of our refined products are busy given all the output of crude oil.
Q: Your firm recently expanded into Singapore. What’s going on there?
A: The world is getting smaller. We need to have a presence and relationships with Asian companies, and we do that in Singapore. We’re one of the few firms that can tie in the whole world in how commodities are traded around the world.
Q: What’s next?
A: We want to be a major player in liquefied natural gas. It’s a nascent market, but given the amount of natural gas we broker, it’s a natural extension for us. Whether we have an office in Shanghai in three or four years depends on how the market grows, but certainly the risk mitigation for commodities has only increased for many companies, so as that grows, so will our company.