Recommended Papers

Key Papers in Commodities Finance

I have compiled a list of some of the most important and influential papers and models, of interest to those studying commodities finance or involved in modelling commodities (oil, gas, electricity, metals and agricultural products). It is not exhaustive; it is intended as a guide to ‘where to get started’.

See Version 1.4 (PDF)

Recommended Papers

The above papers are historically important and are often revolutionary papers, revealing new insights and moving our understanding of commodities finance greatly forward. However, in many cases they are not the easiest papers to read.

Below are instead some recommended introductory papers – these are great introductions to the stated subjects, and quite general, more like a well written chapter of a book. The below are particularly recommended to students of Finance at first or Masters degree level, or those just embarking on a career in commodities. They will quickly get you up to speed.

Commodity Futures Curves

Added March 2010

A paper (PDF) written back in 1991 by Jacques Gabillon is an excellent introduction to futures curves. He describes the general features of futures curves and specifically those in the oil market, such as the typical ways they change over time, the concepts of ‘backwardation’ and ‘contango’, and the term structure of volatility. He compares the futures curve with the term structure of interest rates.

He then goes on to examine simple models for oil prices using a single SDE (stochastic differential equation) to describe the short-term movements, and clearly explains the role of convenience yield and why cannot be a constant in time and across all maturities. He gradually adds necessary features to a simple oil model to captures more and more empirically observed features of the futures curve. This culminates in his proposed 2-factor model, now known as the Gabillon Model, having both the short term and (unobserved) long term price of oil represented as an (arithmetic) Brownian Motion.

As well as an excellent introduction to his own model, Gabillon’s paper (freely available here (PDF), no login required) is a great introduction to futures curves. It is as relevant today as when it was written, and the principles apply to all commodities, not just oil.


Gabillon, J. 1991. The term structures of oil futures prices. Working Paper. Oxford Institute for Energy Studies.

Oil Market, History and Price

Added February 2010

There are hundreds of papers about the price of oil, and I’ve read more than my fair share.  So it was a rare treat when I came across this paper by Fabian Kesicki of the Energy Institute, UCL, University of London, entitled ‘The third oil price surge – What’s different this time?

In a well written 11 pages Fabian covers all the basics of the modern oil market as well as the history of oil in the 1970’s, when the previous two ‘oil shocks’ happened.  He covers in detail demand factors that affect the price of oil (GDP and energy intensity, substitutability of other energy sources) as well as production issues (capacity constraints, investment, various major discoveries, reserves ‘growth’ etc).  He also looks at refining issues, discusses the different types of crude oil as well as the major uses of oil, and what this means for refineries.  He manages to cover geopolitics, looking at OPEC (as you’d expect) and their varying pricing power over time.  He even covers the role (large or otherwise) of speculators in high oil prices, the effect of the US dollar exchange rate on oil prices.

In conclusion, if you want to read one paper and learn a vast amount about the oil industry and oil prices since the 1970’s, read Fabian Kesicki’s paper.


Kesicki, Fabian. 2010. The third oil price surge – What’s different this time? Energy Policy 38, no. 3 (March): 1596-1606. doi:10.1016/j.enpol.2009.11.044.

Oil and Gas Depletion

Added Feb 2010

The topic of predicting what happens to the production and consumption of oil and gas over the next 30-50 years, whether we’ve substantially ‘run out’ etc is a very compex issue.  The best summary I found so far is this paper by R.W. Bentley of the Oil Depletion Analysis Centre, London, UK, entitled “Global oil & gas depletion: an overview” (2002).

Mr Bentley first covers some definitions because there’s lots of difficulties with definitions, units, categories etc in this field.  What is oil?  How do we classify heavy oils, oil shales, natural-gas-to-liquid technology and so on, what is a P50 forecast, etc…

He then covers the available data, why it’s hard to get and why there’s no single ‘definitive’ database of oil wells, discoveries etc. In particular, we know that OPEC’s data, the most important because it covers the most oil, is also probably the least trusted, because of some very suspicious changes to oil reserves in the 1980’s (for some technical and political reasons, most OPEC countries doubled their stated oil reserves ‘overnight’ during the 1980’s).  Now nobody knows what is really true.

Bentley then looks at the various alternatives to ‘conventional oil’.  He covers various  estimates of how much is available, both remaining undiscovered, in existing known reserves, and already consumed (the so called URR or ultimately recoverable resource).  He then looks at various depletion models (what happens to production over time, especially what happens as resources dwindle) and likely shapes of the production curve.   He covers the people making the major forecasts and their background, including a section on the legendary ‘Hubbert’ predictions.  Finally he draws his own forecast, placing ‘peak oil’ at around the current day (2010).  Bear in mind this prediction was made in 2002, but the paper is barely dated.

In summary, R.W. Bentley’s paper is a great introduction to a very complex topic.


Bentley, R. W. 2002. Global oil & gas depletion: an overview. Energy Policy 30, no. 3 (February): 189-205. doi:10.1016/S0301-4215(01)00144-6.


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