“Dysfunctional” Futures Market May Lead To Sharp Energy Price Swings

Low liquidity in futures markets may spark the next major price increase in energy commodities. Sharp market swings in natural gas and electricity prices since Russia’s invasion of Ukraine have left some oil and gas companies without the necessary funds to hedge their physical trades. Increased margin requirements to secure trades are sucking up capital at NatGas majors, trading firms, and power utilities. Some firms and trading desks have called it quits due to high margin requirements, which has led to a decline in market participants. European officials have even discussed plans to suspend power derivative markets as a form of intervention.

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