Wu-Yen (Jonathan) Sun is a Visiting Researcher in the Oil and Gas Program at KAPSARC, specializing in financial derivatives pricing and financial sector’s influence on crude oil prices. He holds an M.S. degree from New York University and has a diverse background in energy and finance. Before joining KAPSARC, he founded a solar power plant construction company and worked as a Consultant at KPMG, focusing on solar and offshore wind power projects.
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