Dr. Ilia Bouchouev is the former President of Koch Global Partners, where he launched and managed the company’s global derivatives trading business for over 20 years. During his tenure, he introduced several energy derivatives products and is widely recognized as one of the pioneers in energy options trading. He is currently Managing Partner at Pentathlon Investments. Dr. Bouchouev holds a Ph.D. in Applied Mathematics, and his areas of expertise include commodity trading, energy economics, and option pricing. He is the author of Virtual Barrels (2023), a book on quantitative oil trading.
Myths and Mysteries About Speculation in the Oil Market
The article provides unique quantitative insights about highly secretive and poorly understood speculation in the oil market. To demystify the behavior of speculators, we look at the problem from five different angles. First, we explain how the presence of large over-the-counter (OTC) oil derivatives market leads to mischaracterization of traditional hedgers and speculators. We then explain what makes oil speculation special and different from speculation across many other commodities. Consequently, we identify the winners and the losers in the oil futures market. To model the behavior of the winners which we associate with fast-moving quantitative hedge funds, we develop the novel framework based on the simple neural-network algorithm. We conclude by analyzing a popular investment strategy of following the winners, or the hedge-funds’ flows.
27th April 2025