Artificial intelligence has been making inroads into the oil and gas industry for a while now after the industry realized all the benefits it could reap from the deployment of these technologies. Now, it has begun changing oil and gas trading as well.
First of all, it bears noting the term artificial intelligence has developed into an umbrella term for a host of predictive and analytical technologies that are a far cry from the average layman’s idea of AI, that is, machines capable of independent thought. We are not there yet. Yet the technology has advanced sufficiently to begin transforming the oil and gas industry, including the trade of these commodities and products.
For now, the space of AI-enabled energy trading providers is relatively empty. One notable recent addition to it was OilX, an oiltech startup that provides traders with real-time oil analytics based on a combination of satellite tracking data and reports from various official organizations, including customs, JODI, and statistics agencies.
Thanks to AI, the OilX platform can process and offer traders a lot more comprehensive and hence more reliable oil fundamentals data in a fraction of the time traditional oil supply and demand analysis takes.
Speed and accuracy are what, according to OilX’s founders, makes the platform unique and these two features also highlight the top priorities of modern-day traders generally. Yet this is only a nascent market with a huge potential.
As OilX’s chief executive Florian Thaler told Oilprice, “Theoretically, AI-enabled solutions can be found everywhere in a trading organisation, from front to middle to back office in trading operations. Ranging from analytics, trade execution, risk management, HR. We believe that the change is coming from a series of small, highly focused and specialized solutions which – when put together – form a comprehensive solution.”
But AI is encroaching on traditional practices in price forecasting as well. This is hardly a surprise given one of the main advantages of algorithms over humans is in the superior predictive capabilities of the former.
"Price suggestion has clearly become a key factor [for AI] where for large trades and complex derivatives it used to take a while to price trades," a senior Citi executive told S&P Global Platts at an industry event last November. AI is already helping traders make better decisions based on price forecasts made by the algorithms, Sandeep Arora said.
And it goes beyond just price forecasts. Artificial intelligence is also being used to help humans learn how to better predict prices.
"We are not so much interested in predicting prices, we are interested in developing better theories that can help us make better predictions of prices," said the head of machine learning Marcos Lopex de Prado at the same event. In other words, machines are not replacing people, at least in the price forecast field, but potentially helping people become more accurate in their price predictions.
What’s in store for this nascent segment of the energy industry for the future? Probably bigger and better things as tends to happen with every technology that has proven its worth for an industry. Thanks to the advantages and benefits it offers, AI technology will likely spread to more commodity markets, Thaler said.
In that, the digital newcomers will continue to draw on the established expertise of the energy industry to come up with better trading decisions rather than trying to confront and overpower it.
“In terms of evolution,” said Thaler, “we see all commodity markets to move further up into the direction how we see gas and power markets trading today.