20170930-法国巴黎银行-Energy_oil__Introducing_Commodity_MarFATM_12页_309kb

COMMODITY QUANT STRATEGY SUMMARY

Core Content

This document outlines the development and application of a new framework for analyzing energy/oil commodity prices using the MarFA™ (Market Factor Analysis) model, which is based on Principal Component Analysis (PCA). The model has been expanded from a weekly to a daily approach, incorporating more explanatory variables to better capture the short-term dynamics of energy prices.

The MarFA™ model identifies the covariances and systemic risks between commodity prices and the factors that drive them. The results highlight that the first market component explains over 60% of the daily variations in energy prices, with US growth, global US dollar, and equity implied volatility being the top explanatory variables. The second market component has also gained importance, particularly in relation to crude and refined product storage and the slope of the US interest rate curve.

Main Points

• Model Expansion: The PCA model has been enhanced by adding 15 new explanatory variables to the weekly approach, bringing the total to 33 in the daily version.
• MarFA™ Framework: It identifies the main market factors and monitors the sensitivities of commodities to these factors.
• Daily Analysis:
  • The first principal component explains >60% of daily energy price variations.
  • Top daily explanatory variables for the first component: US growth, global US dollar, and equity implied volatility.
  • The second component is more significant for crude and refined product storage and US interest rate curve slope.
• Weekly Analysis:
  • The first component still dominates, explaining >95% of energy price movements.
  • The second component is now more relevant, with global storage, technical positions, and US dollar being key variables.
  • The explanatory power of the first component for WTI has decreased compared to the June 2017 publication.
• Fair Value Estimation:
  • WTI oil is ~2% above its short-term fair value (USD 51.26/bbl) based on the daily model.
  • WTI oil is ~5% above its weekly fair value (USD 48.80/bbl).
  • Assets that move away from their fair value tend to return to it within one week.

Key Information

• Explanatory Variables: The model uses over 30 daily market variables and more than 30 weekly market variables to determine the factors influencing commodity prices.
• Systemic Risk: The model highlights the importance of systemic risk during periods where multiple factors influence price dynamics.
• Forward-looking Insights: The model can be used to formulate views on future market drivers, such as monetary policy normalization in the US.
• Model Function: A function has been developed to model the short-term and weekly fair values of WTI oil, based on the top explanatory variables.
• Charts: Several charts are provided to visualize the rolling covariance of the principal components with key variables, offering insights into how the model works in practice.

Strategy Recommendations

• Short-term Trade: A short trade recommendation was triggered based on the PCA model's analysis, indicating that WTI oil is overvalued relative to its fair value.
• Market Drivers: The model emphasizes the dominant role of macroeconomic and financial factors in driving energy prices, even in the short term.
• Monitoring: The model is a robust tool for monitoring and quantifying relationships between commodities and market factors.

Important Contacts

• Gabriel Gersztein: Head of GM Latam Strategy, +55 11 3841 3421, gabriel.gersztein@br.bnpparibas.com
• Michael Sneyd: Global Head of FX Strategy, +44 20 7595 1307, michael.sneyd@uk.bnpparibas.com
• Gustavo Mendonca: FX & IR Latam Strategy, +55 11 3841 3445, gustavo.mendonca@br.bnpparibas.com
• Samuel Castro: Commodity Quant Strategy, +55 11 3841 3492, samuel.castro@br.bnpparibas.com

Legal Notice

• This document is a marketing communication and not investment research for MiFID purposes.
• It is intended for Relevant Persons as defined by MiFID and other financial regulations.
• No guarantee is made regarding the accuracy or completeness of the information or opinions provided.
• Indicative prices are not actual transaction terms and are based on internal models and assumptions.
• BNP Paribas may have financial interests in the entities mentioned and may engage in transactions inconsistent with the views expressed in this document.