ZE DataWatch’s Second Year: Data Flow Review

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Source: ZE

It has been only two years since we rolled out ZE DataWatch, our online data news publication. With an objective to cover all news related to data in energy and commodities markets, we have witnessed quite interesting twists over these two years.

The most noticeable and continued development is an increase in the number of data reports. I don’t think that I have to say more than this: the number of magazine pages dedicated to changes to data reports and products has doubled over this period of time.

Throughout these two years, we have observed the tightening of environmental regulations, new marketplaces emerging in Asia and Latin America, and the European economic crisis. All those events are echoed in the development of data sources and data reports. And, the most apparent trend throughout this time period has been a growing focus on the fossil fuel markets.

Fossil Fuel Markets

Two major rivals, IntercontinentalExchange (ICE) and CME Group Inc. (CME), started off as main players in the fossil fuel fields. Howevever, quite quickly,  data publishers, Platts and Argus, picked up the pace and overtook public exchanges in the breadth and depth of coverage. We have seen dozens of new types of swaps, futures, and options added to the suite of derivatives built for these products. New price assessments on coal, crude, gasoil, jet kerosene, and other petroleum products were developed in response to market movements in Europe, Japan, China, India, Indonesia, and Singapore. The majority of assessments for coal and crude products were developed with West Africa and Australia being the locations of origin.

The crude oil markets went through major changes. The two key global crude oil benchmarks, WTI and Brent, underwent a change from their typical behavior. In the beginning of 2013, Brent prices started to climb and WTI moved in the opposite direction. The Middle East turmoil, European financial crisis, and declining production in the North Sea pushed Brent prices up. On the other hand, a rise of North American oil production supported by rising production from the Alberta oil sands, along with increasing production in Saskatchewan, North Dakota, and Montana, sent more crude into the pipeline, suppressing WTI prices. As seen in Figure 1 below (in a graph created with our enterprise data management software, the ZEMA Suite), the spread between the two markers remained wide for almost two years before the prices finally converged in the second half of 2013.

Figure 1: WTI and Bent Crude Oil Spot Prices I Source: EIA

As shown in the graph of Figure 2, the volume of trade for the contract with the same expiration date (December 2015 for both crude benchmarks remained high; however the WTI activity started to accelerate during the last year, which coincided with the point when the WTI prices finally started to catch up with the European price setter.

Figure 2: Volume of Trade of December 2015 Contracts for WTI and Bent Crude Oil I Source: NYMEX

The global attention to the oil benchmarks stemmed into new futures, swaps, options, spreads, assessments, and swap contracts introduced by public exchanges and private data providers.

Global thirst for natural gas was reflected in new LNG products launched by CME, Tradition, ICIS, Argus, and Platts.

Emerging Markets

In addition, emerging markets have been on the rise. Some of the most closed economies created open markets: an electricity market in Brazil and Japan and energy trading in the Middle East. China promised to introduce crude oil-based securities and to set a benchmark for the region. Hong Kong Exchanges and Clearing Ltd (HKEx) announced its intent to build a joint venture with Chinese Shanghai and Shenzhen bourses. HKEx, the world’s largest exchange by market capitalization, acquired LME by outbidding ICE. Other M&A developments are CME’s acquisition of GreenX and pending acquisition of NYSE Euronext by ICE. The most recent news is the SEC’s approval of the planned takeover on August 15, 2013.

Interestingly enough, the hype around emerging markets seems to be calming down in the last several months. The flood of new derivatives following emerging markets has receded. In effect, trading volumes of products built on emerging markets volatility have been dropping. Figure 3 shows that open interest and trade volumes of ETF Emerging Market Volatility Index Futures traded on CBOE has been decreasing consistently over the last year.

Could it be the sign that the emerging markets are slowly losing their appeal with dropping volatility and increased globalization?

Figure 3: Volume of Trade and Open Interest of December 2015 Contract for ETF Emerging Market Volatility Index Futures I Source: CBOE

Environmental concerns have maintained their significance and environmental products remained popular with exchanges and data providers, especially two years ago, right when we started our DataWatch journey. We witnessed the birth and demise of NOx and SO2 contracts. As a direct reaction to the then new EPA Cross State Air Pollution Rule (CSAPR), NOx and SO2 emission allowance instruments were launched by GreenX and ICAP. However, a year later, these contracts were delisted when a decision by the U.S. Court of Appeals for the District of Columbia overturned the CSAPR rule. The California cap-and-trade scheme supported creation of new derivatives built on California Carbon Allowance contracts; they are now offered by GreenX and ICE.

New carbon markets are on different stages of development in China, Australia, New Zealand, and Japan. Some of them consider linking their trading systems; with some of them converging over time, the fully developed markets might look completely different in several years to come.

Weather products are getting more prominence with more support from providers of forecasts targeting wind and solar generation. MDA EarthSat Weather, AccuWeather, WSI, PRT Underground Weather, IIR Energy, as well as electricity system operators themselves introduce new forecasting tools mainly supporting intermittency of renewable power generation.

ZE DataWatch tracks introduction of new data products, removal and changes to the existing ones, as well as developments in market places that can affect data flows and data reports. Stay tuned as we are to introduce weekly updates that can be delivered directly into your e-mail inbox!

If you would like to learn more about how our ZEMA Suite of software can help your company manage, analyze and integrate these data sources more effectively, please contact us for a free demonstration.



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