Between June 2014 and March 2016, the inflation-adjusted price of oil dropped by 66%. This price decline was one of the largest in history, yet average U.S. economic growth accelerated only slightly from 1.8% at annual rates before the oil price decline to 2.2% after the oil price decline. The absence of an economic boom in response to falling oil prices has puzzled some observers, given that higher oil prices in the past have been blamed for major economic recessions. That said, it is well documented that the consumption stimulus from lower oil prices is only modest, and the recent episode is no exception. What had not been fully appreciated is that the oil investment response does not depend so much on the magnitude of the oil price decline, but rather on how far the expected oil price declines relative to the break-even point. Hence, oil investment may change disproportionately, as oil price expectations change. This fact may hold the key to understanding the macroeconomic consequences of oil price shocks in countries with a sizable oil sector such as the United States. Professor Kilian presented on this article’s topic during his keynote speech at the JPMCC’s August 2017 international commodities symposium.

Renewable power purchase agreements (PPAs) have long been important enablers of renewable energy development. They are a means to providing the revenue certainty that project developers need to secure financing for capital-intensive wind and solar projects, and they also give renewable energy buyers access to the renewable energy they desire without upfront capital outlay or the need for development expertise. However, these agreements are complex long-term financial contracts and should be treated as such within any buyer’s broader business portfolio. In this first article of a two-part series on renewable PPA analytics, we illustrate how nuanced interactions between intermittent generation and electricity market prices can significantly impact PPA value. Without proper value tracking and active management, adverse market moves can erode PPA value over time and potentially require the buyer to make settlement payments each month to cover losses on the contract. In the second article of the series, to appear in the Winter 2018 edition of the GCARD, we will elaborate on the mechanics of risk mitigation strategies.

The fifth issue of the Global Commodities Applied Research Digest (GCARD) draws from the JPMCC’s varied expertise across academia and industry. The Summer 2018 issue includes a special focus on the JPMCC’s inaugural international commodity symposium that took place in August 2017. The current issue also examines the prospects for commodities in light of geopolitical tensions and trade war concerns. In addition, the present edition examines various futures trading strategies, including momentum trading, positioning analysis, pairs trading, and volatility analysis. Finally, members of the GCARD’s Editorial Advisory Board have contributed articles on the fundamental developments in the crude oil market as well as on the considerations in evaluating renewable energy contracts. We welcome reader feedback on this issue.