The Changing Structure of Energy Trading Markets[†]

Energy trading markets have been undergoing radical transformation lately. These transformations are set to accelerate in 2013 because of much anticipated implementation of new rules that will govern global swaps markets.  These  include  measures  such  as  position  limits,  mandatory  clearing  and  margin  requirements,  capital  requirements,  pre-  and  post- trade  transparency  through  position  reporting  requirements  to  trade  repositories,  as  well  as trading  standardised  swaps  on  designated  contract  organisations or swap execution facilities where multiple traders can place bids and offers, and real time  reporting  of  cleared  and  uncleared  swaps  to  the  centralised  swap  data  repositories.  These  changing  dynamics  present  new  challenges  not  only  for  financial  speculators,  who  buy  or  sell  any  asset  in  the  anticipation of a price change, but also for traditional energy companies that use previously unregulated  financial derivative instruments to hedge or mitigate commercial risk.

Is WTI Weakness Purely Physical?*

Prices for crude oil benchmarks WTI and Brent have historically been related. In general WTI light sweet crude oil sold at a 5% premium to Brent crude oil between 1994 and 2010. However, this relationship between WTI and Brent crude oil totally collapsed in 2011. Brent crude oil sold at an average premium of $13/bbl in 1H11, or 13%, reaching $23/bbl in mid-June.