Energy Commodity Price Analysis and Trading Strategies
Embargo until
2020-05-01
Date
2015-12-01
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Johns Hopkins University
Abstract
This dissertation studies the three main energy commodities---oil, coal and natural gas---against a backdrop of the US shale revolution and the recent oil market crash. We focus on one fuel in each of the three main chapters, using different methodologies given the particular features of that product.
First we investigate whether the US and UK gas markets had been moving toward integration during the period 2005 to 2014. By introducing a novel measure of distance between the forward curves of the Henry Hub (HH) and National Balancing Point (NBP)
indexes, we take full advantage of the information of the highly liquid gas futures markets, to complement the classical cointegration analysis which relies solely on spot prices.
Next we study the world coal markets and their co-movements with oil and gas markets. We apply the principal component analysis (PCA) and pairwise cointegration analysis on a comprehensive coal data set of ten prominent markets around the globe over the years 2004--2015, in order to find out if there is any regional divide between the Atlantic and Pacific basins. We examine the cointegration among the three energy fuels in different periods of time in both the US and Europe, exhibiting the implications of the US shale boom.
Finally we turn to the relationship between commodity prices and mining companies' shares prices, in the case of oil sector with its large amount of heavily traded stocks. In order to benefit from "the leverage" of commodity equities, we introduce intraday pairs trading strategies and demonstrate high and stable profitability, especially during period of sharp oil price movements. By using high frequency stock price data, we are able to design trading strategies that capture very short-term market inefficiencies and achieve remarkable returns, even accounting for transaction costs.
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Keywords
natural gas, coal, crude oil