Table of Contents

International Handbook on the Economics of Energy

International Handbook on the Economics of Energy

Elgar original reference

Edited by Joanne Evans and Lester C. Hunt

As an essential component for economic growth, energy has a significant impact on the global economy. The need to meet growing energy demand has prompted cutting-edge innovation in clean technology in an attempt to realise environmental and cost objectives, whilst ensuring the security of energy supply. This Handbook offers a comprehensive review of the economics of energy, including contributions from a distinguished array of international specialists. It provides a thorough discussion of the major research issues in this topical field of economics.

Chapter 30: International Energy Derivatives Markets

Ronald D. Ripple

Subjects: economics and finance, energy economics, public sector economics


Ronald D. Ripple* 1 Introduction Energy derivatives are relatively new to global energy and financial markets. The first exchange traded energy futures contract was heating oil on the New York Mercantile Exchange (NYMEX) in November 1978. This contract was followed by its European counterpart, a gasoil futures contract traded on the International Petroleum Exchange, in April 1981. Since then a wide range of energy derivatives have been listed on numerous exchanges around the world. The energy commodities covered by derivatives contracts that followed these initial offerings include a range of crude oil, refined oil products, electricity, coal, and natural gas. Perhaps the best known of these is the NYMEX futures contract on light, sweet crude oil, which began trading in March, 1983. This futures contract has grown to be the largest traded futures contract of all commodity futures traded anywhere in the world (see Table 30.5, below). Prior to the 1970s, virtually all energy commodities either traded under long-term contracts with set quantities and sticky prices, or they were regulated by government. The inherent lack of price fluctuations under these types of regime meant that there was no need for such risk mitigating, hedging instruments. The crude oil disruptions of the mid-1970s and early 1980s, along with a shift away from sticky prices in term contracts, meant that energy prices became more volatile, and market risk mitigation tools and instruments were necessary. Market participants do not have to hold physical positions in the underlying commodity. Speculators (who do not hold...

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