The most advanced data-led trading operation in the sector is arguably found at the Miami-headquartered hedge fund Citadel, which hired commodity trader Sebastian Barrack from Macquarie in 2017 to lead a bigger push into energy and raw materials.
In the hunt for an informational advantage, one of Barack’s first moves was to hire a 20-strong team of weather forecasters. The broader commodity trading team has since swelled to more than 300 people including analysts and engineers.
Oil and refined products is one area where the available data on supply levels, demand patterns and logistical variables has ballooned in recent years, Barrack told the Financial Times. “The prolific growth of the data that’s becoming available to us is literally making us better-informed investors.”
For data-led trading strategies the energy transition promises to be a boon because it will increase complexity and require more sophisticated tools to model markets, particularly when there is a lack of historical information in a new area, he added. “The more detail, the more complexity, the more there is a lack of backward-looking data, the better for us.”
The ability to process large volumes of data is particularly important in the fast-growing area of power trading, where the regulated nature of electricity markets produces large amounts of information.
Consultants McKinsey estimate that data-driven trading firms captured a quarter of gas and power trading profits globally in 2022, up from less than 5 per cent in 2021.
That competition has forced traditional commodity traders such as Trafigura, which made a record $7.4bn in 2023, to invest to keep up. It set up a power trading division three years ago.
Richard Holtum, head of gas, power and renewables at Trafigura, said his team “uploads several billion discrete bits of data into the cloud” every day. “The challenge there is using AI to interrogate that data in a better, more efficient way to improve the trading decisions that we are then making,” he said. “I think right now we are at the very tip of the iceberg on what AI can do.”
Reported in the Financial Times.
Commodity traders bet big on big data and AI. Tom Wilson and Malcolm Moore. 21 April 2024