The Reality of “Black Holes”
by Hilary Till in Tapping the Value of Futures Data: A Practitioner Perspective presented to Commodity and Energy Markets Association (CEMA) Conference in Boston June 24, 2024
In a presentation to the CEMA Hilary Till reminds us of the difficulties in extracting information about commodity markets suffering from Black Holes in the data sets. Valuable information such as global inventories, and even local refinery processing is simply missing. The truth is out there, trick is trying to find it….
In Emerging Markets
With “emerging markets … [becoming] increasingly dominant in the international economy, we have more and more ‘black holes’” in data coverage, explained Ed Morse, (then) Global Head of Commodities Research at Citi in CFTC (2017).
“We know what [crude oil] inventories are … in OECD countries … We have a … decent idea in some other countries; Saudi Arabia is very good for example at posting their inventories of products and crude oil, as is Brazil.”
“Even China, which produces a lot of statistics, has a lot of missing barrels, a lot of missing molecules, [and] a lot of missing tons of grains because their inventory [data] is a state secret.”
“So black holes are getting larger and larger and impacting our understanding of [commodity] fundamentals.”
Even in Some Markets in the U.S.
Martin (2017) discussed how “Hurricane Harvey hit the Texas refining system hard”. As a result of the disruption to refinery crude processing, the J.P. Morgan commodities research team assessed the “cumulative loss of product supplied as … 22 [million barrels] mb of gasoline and 20 mb of middle distillates …”
“The majority of this shortfall will turn up in [U.S.] PADD 3 inventory levels in future weeks’ [Energy Information Administration] EIA reports.
However, some of this was destined for export markets, and some for shipment … via pipeline to PADD 1 – so the impact will be dispersed across several markets, not all of which will publish data that makes the true impact transparent, and thus, we continue to look at price signals as a guide for the underlying market dynamics,” noted Martin (2017).
Read more here….
Source: CFTC
Practitioner Presentation * Hilary Till * Premia Research LLC and Bayes Business School * https://www.bayes-cid.com/hilary-till