Applications of Alternative Data

in Energy Commodity Market

Forecasting
Sahand Haji Ali Ahmad, Ph.D
Energy Commodity market Products
• On Various exchanges (CME, NYMEX, ICE futures, Dubai Mercantile
Exchange, Shanghai International Energy Exchange,…):
CME-NYMEX WTI Futures:CL1,…
CME-NYMEX Natural Gas Futures:NG1,…
ICE Brent futures:B1,…
ICE Natural Gas Futures:M1,TFM1,…
ICE Liquified Natural Gas Futures: GCL, JKM,…
Dubai Oil: JDC1 (on NYMEX)
Shanghai Oil (Yuan): SC1912,…
Long-Term Trading Strategies:
• Supply/Demand estimation:

• Break-even price for the shale producers, ….. As the target price
• e.g , Demand from refiners: Gulf Coast refiners are also tapped out on
capacity ,running at 98%
• Foreknowledge of supply disruption, shrinkage,…

• Using Alternative Data to predict future supply/demand , estimate Current

Consumption
• Bet on the refiners equities for upside/downside (particularly advantaged
refiners) if oil goes down/up
Short-term Trading Strategies:
• Short-term Trading Strategies come in several flavors:

• Predicting the price change over a few days (Mid-frequency):

• Predicting the price change over a few hours or minutes (High-
Frequency):
Short-Term Prediction using Technical
Analysis:
• Technical Indicators (Trend , Bollinger band, RSI , MACD, ...)
• Seasonality patterns: time of the Day, week, month, year

• Microstructure of the markets:

1. NYMEX Crude Futures(CL1,CL2,..) moves mostly at the open of NYC(

Significant move)
2. Lead/Lag between various Exchanges and Products
Using AI(Deep Learning) with Higher
Frequency Data
• Another more scientific approach to the technical analysis, is to use
sequential daily or hourly or minute data of price, volume, open
interest in futures, put/call options outstanding,… in order to calibrate
AI/Deep Learning models to the Data, so that they make a forecast in
regards to the Futures returns.
• Such approach using deep learning for equities has been published
and back-tested successfully.
Technical Analysis(Trend)
Technical Analysis(Mean-Reversion mid-term):

• Bollinger Bands, Relative Strength , Two Sigma Variance,….. :

Mean-Reversion (Short-term)
Betting on Spread between Natural Gas and
Oil:
Betting on the spread between WTI and BRENT:
Betting on spread between Oil and Rbob:
Predicting Expected Event Outcome
• Predicting the price move after events(predicting event outcome) and positioning
before the event: OPEC meeting statement, US/EU GDP release, US/EU
Unemployment/inflation release, Inventory report, Probability of a legislation being
introduced, Outcome of a vote on a legislation, Baker Hughes rig count,…
• e.g, Predict Regulations related to oil:
• e.g, Crude is demand-capped at the Gulf Coast because policy forbids it being shipped for
export as a raw commodity:
Q: Will Washington act to allow wholesale lifting of the crude export ban?
Q: What are the chances of success for a piece of legislation introduced in
senate?
Q: (If the bill is introduced) what are the chances of passing?
• The best way to estimate consumption is to use the data available (Traditional consensus
data as well as available Alternative Data)
Predicting expected move after the release of
event outcome
• e.g : After the release of inventory data, Rig count data, OPEC
meeting minutes,………… how would the market react ( Post event
reaction):
1. Finding the factors that affect the price ( Surprise factor(Difference
between actual and consensus), Trend value, RSI, Bollinger band ,
News sentiment, Options skew,…..)
2. Combining them using various Classifier/Clustering methods
Reacting to Unexpected Events/News
• News sentiment analysis: reaction time is short-term but the
following trend move can last for a significant amount of time (mid-
term)
• News:
• “South Africa Halts Oil Exploration Permits to Revamp Licensing”
• “Saudi agrees to US request to pump more oil”

• The reaction (initial price jump as well as the pursuant trend) should
depend on the news. A sentiment score for news based on NLP
methods(Natural Language Processing) is highly useful.
Predicting the spread:
• Spreads across location, between WTI, Brent, Dubai, Shanghai
• Spreads across product between flat and derivative
• Spreads across time(Seasonality, supply/demand balance change,…)
• If the spread between Brent and WTI is growing , then which refiners
benefit the most? (equity trading)
• Are the spreads going to grow more or are they going to mean-revert
soon?
Using Alternative Data for Price Prediction:
• Estimate inventory based on satellite imagery(live): A good measure
of supply/demand balance
• Options imbalance/skew: A measure of Market sentiment
• Taking signals from other indexes( USD, Equity Index,….): Lead/Lag ,
Correlation,..
• Movement of ships and Tankers: Particularly useful for Location
spread estimations
• News sentiment aggregate
• Unofficial Consensus about inventory/.. : A precise data source ahead
of the actual data release
Relevant Alternative Data:
• In-field Monitors and Satellite Imagery: Genscape
• Satellite Estimation of Inventory : Orbital Insight, RS Metrics, Descartes,
Spire, Ursa, TellusLabs, Space Know, Sky Watch, Rezatec, Kayrros
• Auto Gas Consumption (based on monitoring traffic) : Thasos
• Global Oil&Gas Cargo Flow Data : Kpler , Windward, Vessel Finder,
Maridata, Marine Traffic,Geotab,…
• Historic Futures Price and Data: Quandl
• Social/News Sentiment: CogniSent, Interconnect Analytics, Dataminr,
Skopos Labs, Quantcube, Brain Company, Ravenpack
• Patent Data in Energy Industry: PatentSight, Ipqwery,…
• Weather Data: Understory, WXshift
Relevant Alternative Data:
• Mobile user movement/location: Safegraph
• Oilfield services data(employment/wages/..): Rigup
• Online Video views(related to a company/industry): Premise,
• Oil and Gas data repository: JWN Energy
• Data Aggregating and Machine Learning Analysis: Discern
• Predicting the outcome of Legislatures(impacting energy prices): Skopos
Labs, FiscalNote, Legis,…
• Accurate Inventory forecast(LNG,Oil,…): Estimize
• predicting data indirectly influencing oil/gas (such as Unemployment rate,
GDP data, USD exchange rate,….) : Other Alternative Data
Other Useful Data
• Airline Industry statistics and data regarding the number of
passengers/flights/cargo(ARC,Airports Council International,…)
• Anonymized Retail Receipts indicating the amount of gas pumped in
the tanks (Money Dashboard,….)
• Transportation industry data(TransCore,American Trucking
Association,Broughton Capital,…)
• exploration, production, oilfield servicing, and North American shale
of 1000 US companies: Rystad Energy,…
• Drilling Activity Data: Rigdata,Drillinginfo,…
• Physical Traffic Monitoring: Placemeter, …
First Example:
• Strategy Description
• The Sentiment-based Crude Oil Strategy is a long/short systematic
strategy based on sentiment data. Difference in the two exponential
moving averages (slow and fast) of both sentiment and the market
data will identify the Long/Short signal to make an entry on Crude Oil
futures contract. The position is kept open until hit by its own stop-
loss or target level set by the strategy at the point of entry day.
Strategy’s properties
Strategy Strategy
Ann. Return 39.8% Sharpe Ratio 1.6
Ann. Volatility 24.90% Sortino Ratio 2.28
Year-Date Return 18.12% Return/MaxDD 2.18
Last 1Yr Return 49.69% MaxDD Time Recovery 0.25
Last 3Yr Return 58.81% % Positive Months 66%
Max. Drawdown 18.25% % in Market 95.18%
Performance Chart
Second Example:
• Using Relative Sentiment(Oil):
Viewing Current sentiment in relation to the recent past sentiment
(extremely bad sentiment recent past+ bad sentiment now = Positive
sign)
• Backtesting from 1/1/2016 to 1/6/2017 on CLZ17 (expiring in
December 2017). All strategies will be benchmarked against a Long-
Only Position on the same Future Contract(CLZ17).
First Version:
• The Strategy (Part 1)
• For the first attempt, we will use the following Strategy:
• If (5 Day Sentiment Moving Average – 10 Day Sentiment Moving
Average) > 0.5:Long Future
• If (5 Day Sentiment Moving Average – 10 Day Sentiment Moving
Average) < -0.5:Short Future
Second Version:
• If (1 Day Sentiment Moving Average – 5 Day Sentiment Moving Average) >
1: Long Future
• If (1 Day Sentiment Moving Average – 5 Day Sentiment Moving Average) < -
1: Short Future
• Lower Detection Delay(better returns), Higher Probability of False
Alarm(drawdown)
Third Version:
• If (1 Day Sentiment – 5 Day Sentiment Exponential Moving Average) >
1: Long Future
• If (1 Day Sentiment – 5 Day Sentiment Exponential Moving Average) <
-1: Short Future
Major Observation:
• Looking at Generic Crude Oil Futures(CL1) which reflect the performance of
spot prices of WTI Crude Oil, The price was 37.04 on 1/1/2016 and 47.66
on 2/6/2017. This implies a performance of 28.67% over the backtest
period, much higher than the benchmark observed above(CLZ17).
• Trading of Future contracts costed a Long-Only Position an estimated 20%
of its returns over 1.5 years.
• It is quite possible that trading other forms of derivatives on WTI such as
CFD contracts or the underlying product itself will further improve results if
the costs of trading these products are lower compared to the cost of
trading futures.
• Major Question: How would this trading strategy fare if storage cost is
taken into the picture for trading physical crude?
Thanks for Paying Attention

The End
Sahand.ahmad@gmail.com