Same concept here, It's all about information asymmetry.
From the Wall Street Journal:
A growing industry uses surveillance and data-crunching technology to supply traders with nonpublic information.
CUSHING, Okla.—A helicopter lifted off recently from an airfield in this remote oil town, scudded low across the flat industrial landscape and trained a heat-sensitive camera at the huge storage tanks below.Its mission: Gather intelligence for Wall Street.The grainy, infrared reconnaissance images betrayed how much oil was in each tank. That gave Genscape Inc., the company that conducts the flights, a remarkably accurate preview of a market-moving U.S. government report on oil supplies. Traders, hungry to get a jump on the official data, are willing to pay a hefty price for that intelligence.Genscape is at the vanguard of a growing industry that employs sophisticated surveillance and data-crunching technology to supply traders with nonpublic information about topics including oil supplies, electric-power production, retail traffic and crop yields.The techniques, which are perfectly legal, represent the latest advance in the longtime Wall Street practice of searching for every possible trading advantage. But the high cost of much of the new information—Genscape's oil-supply report costs $90,000 a year—means that some forms of trading are becoming even more the province of firms with substantial resources.Genscape Chief Executive Matthew Burkley says such surveillance brings transparency to markets long dominated by energy giants. Although some energy companies aren't happy about the information gathering, he says, "no one can stop us from doing what we do."Besides monitoring oil supplies in Cushing, Genscape tracks oil shipments leaving European ports using 800 antenna stations, videotapes railcars of crude oil and follows them to their destinations, calculates the amount of coal burned in the U.S. and western Europe, and even studies crop yields using, among other things, satellite imagery.Other companies are in the game, too. Remote Sensing Metrics LLC in New York has teamed up with satellite companies, such as Colorado-based DigitalGlobe, to analyze sales at major retail chains such as Lowe's and Target by counting cars in parking lots. DigitalGlobe also uses satellites to assess crops and damage levels at disaster sites."With new sources of intelligence available, people find new ways to exploit it for an advantage," says Tony Frazier, a DigitalGlobe vice president.
Two images of fields in São Paulo, Brazil,
the
bottom one taken in infrared. Darker
red areas may indicate how recently
crops
were watered, and generally reflect their health.
RS Metrics (analysis); Astrium (image)
Andrew Lo,
a finance professor at Massachusetts Institute of Technology,
says advances in technology can make markets more efficient but also can
raise questions of fairness. "It can drive less-informed investors out
of the market," he says. "Is the information so valuable, and so hard to
get, that only a few people can get it? That creates a barrier to
entry."
Cushing is the delivery point
for U.S. contracts for the benchmark West Texas Intermediate, a light
sweet crude commonly refined into gasoline. When there is a buildup of
oil in Cushing it indicates that there is an ample supply, and prices
tend to drop on the New York Mercantile Exchange. When stocks are
declining in Cushing, prices tend to increase.
Every
week, the U.S. Energy Information Administration, or EIA, releases a
survey that includes Cushing storage levels. Genscape typically releases
its report two days before the EIA survey. Between July and late
November, Genscape's reports predicted the direction of every change in
the EIA report.
Even EIA officials
consult Genscape's report before publishing their own survey. When
government officials have spotted big discrepancies, they have
double-checked with oil companies that submitted data and occasionally
discovered errors.
"We just sort of do it as a sanity check," says Douglas MacIntyre, the agency's director of petroleum and biofuel statistics.
