Paper Oil Markets
Since the launch of ESAI’s first Hedge-Memo in 1993, ESAI has analyzed both the physical markets for oil and the paper (or financial) markets for oil. The Hedge-Memo introduced ESAI’s phantom trading account as well as our path breaking analysis of non-commercial behavior in the Commodities Futures Trading Commission (CFTC)’s Commitment of Traders (COT) Report. ESAI has always believed short term oil price dynamics reflected the integration of both physical and paper market developments. This approach was described in detail in the book, A Year on the (H)Edge: Integrating the Physical and Paper Fundamentals in the Oil markets in 1994 and 1995. Then in 1996, ESAI published a multi-client study, Paper Oil: The State of the Markets and the Uses of Their Instruments, and then in 1998, ESAI published with Risk Books, Crude Oil Hedging: Benchmarking Price Protection Strategies.
Since then, ESAI has expanded this analysis in the successor to the Hedge Memo, a weekly report entitled Oil Energy Fundwatch, and in 2007 published a white paper entitled Financial Energy Markets and the Bubble in Prices: Does the Increase in Energy Trading by Index and Hedge Funds Affect Energy Prices?
Today, ESAI’s paper market analysis includes analysis of macroeconomic indicators such as stock markets, gold and the dollar, but still focuses on oil market activity by index investment, managed money and swap dealers. Furthermore as the paper markets fall under increasing regulatory scrutiny, more and more data are becoming available, and Oil Energy Fundwatch continues to adapt.
Understanding only physical supply and demand is insufficient for anyone to understand the oil markets. ESAI was the first research firm to realize this and integrate our world class physical market analysis with constantly evolving paper or financial market analysis.
For more on how ESAI can help you understand the role of paper markets in oil price discovery and a complimentary copy of the current issue of Oil Energy Fundwatch, contact Sonny Kanlier at skanlier@esai.com or 781-245-2036.