Advanced Energy Market Analysis, Deregulation, Price, Intelligence and Liberalisation Course

Course Overview

This comprehensive professional development program is designed for Senior management officers involved in creating strategies to ensure that the company achieves a higher presence in the energy market, Policymakers and advisors and regulators charged with formulating forward-thinking policies that help incentivize investment in energy, Financial institutions considering investing in the energy market or advising high-value clients to diversify their portfolios to include energy assets or energy companies, Energy procurement managers responsible for choosing the most effective energy procurement plan, Energy professionals looking for a recognized path to career progression or exposure to other areas of energy, and Power market analysts responsible for tracking the energy market responsible for implementing advanced energy market analysis and deregulation and price intelligence and liberalization excellence across US electricity sector deregulation and market power and retail price dynamics, comprehensive energy market intelligence programs for utility company strategic decision-making, and CFTC-analyzed WTI crude oil swaps and futures derivative hedging frameworks in multi-organizational contexts. The program addresses proven practices in US electricity deregulation and market power analysis, utility company energy market intelligence and competitive benchmarking, and WTI crude oil OTC swaps and NYMEX futures integration for energy price risk management where MIT CEEPR researchers Alexander MacKay and Ignacia Mercadal studying US state-level electricity deregulation that began in the late 1990s and constructing a unique dataset covering annual electricity flows from generation to final consumption for each electric utility territory from 1994 through 2016 and finding that prices increased in deregulated markets despite a modest reduction in marginal and average variable costs with the increase in markups dominating the efficiency gains and indicating the widespread exercise of market power with gross markups defined as retail prices minus the marginal cost of generation increasing by 15 dollars per MWh from 2000 to 2016 corresponding to a 19 percent increase in prices over the period, Infiniti Research describing a project for a leading US-based utility company that sought comprehensive market intelligence to navigate the evolving energy landscape in areas including transitioning to renewable energy sources and improving customer engagement through technology and navigating regulatory challenges effectively with the engagement delivering pricing analysis and sustainability roadmapping and market engineering frameworks and assessment of market trends that equipped the client with actionable insights, and CFTC researchers Scott Mixon and Esen Onur and Lynn Riggs from the Office of the Chief Economist publishing an integrated analysis of WTI crude oil swaps and futures using new regulatory transaction data collected by the CFTC under Dodd-Frank and finding that commercial end-users have a much larger footprint in the WTI swaps space than financial end-users do with Acharya et al. 2013 confirming that nearly 90 percent of oil and gas producers surveyed use derivatives to hedge with over 80 percent using OTC swaps and options and nearly half also using futures or forwards.

The curriculum integrates Overview of Energy, Energy Commodities, Overview of the Energy Market, Types of Energy Market, Energy Market Analysis, Energy Market Deregulation, Overview of the Energy Market Price, Principles of Pricing, Energy Price Risk Management, Energy Market Intelligence, and Energy Market Liberalization to provide comprehensive coverage of energy market principles, market analysis and intelligence gathering methodologies, and deregulation and liberalization and price risk management integration domains for achieving advanced energy market analysis and deregulation and price intelligence and liberalization excellence.

Why This Course Is Required?

US electricity deregulation and market power analysis represent critical competencies where MacKay and Mercadal confirmed that the impact of deregulation on prices is theoretically ambiguous because market-based prices provide incentives for profit-maximizing firms to reduce costs but firms that have market power also have an incentive to increase markups by choosing prices above marginal costs and when cost efficiencies from deregulation are outweighed by an increase in markups market-based prices can be higher than regulated rates, and that from 2000 through 2016 over 85 percent of wholesale electricity was sold through bilateral contracts outside of centralized markets making broader analysis of prices and the interactions between upstream and downstream market participants essential, with the data showing wholesale markups increased by roughly 9 dollars per MWh representing over 60 percent of the overall increase in gross markups and market power in the generation market being the primary driver of price increases. Utility company energy market intelligence and competitive benchmarking demand specialized knowledge where Infiniti Research documented that power production companies encounter challenges including regulatory compliance and energy price volatility and competition from new entrants and the need to transition to renewable energy and improve customer engagement through technology, with the market intelligence engagement developing frameworks that align business objectives with market dynamics and utilizing data analytics to understand emerging trends and consumer preferences and implementing cutting-edge technologies to optimize operations and reduce costs and developing pricing analysis strategies to navigate price volatility ensuring profitability across diverse energy markets and providing a sustainability roadmap to meet environmental compliance while fostering sustainable growth. WTI crude oil OTC swaps and NYMEX futures integration for energy price risk management requires professionals with derivative-hedging expertise where Mixon and Onur and Riggs confirmed that end-users transfer price risk to the swap dealer using OTC swap contracts while swap dealers seek to offset exposures using offsetting order flow or listed futures and that the swap allows the end-user to hedge price risk but that risk does not disappear but is transferred to the swap dealer leaving the swap dealer with exposure to the price changes in the underlying commodity, and that for a commodity such as WTI light sweet crude oil the most obvious market for swap dealers to offload risk is the NYMEX Light Sweet Crude Oil futures market with commercial end-users having a much larger net exposure in swaps than in futures while financial end-users are smaller in swaps than in futures.

Energy market professionals must master energy overview and commodities fundamentals including meaning and sources and types of energy and meaning and role of energy commodities, understand comprehensive energy market overview and types and analysis frameworks including meaning and scope of the energy market and major agents and what influences their design and regulation and obstacles and operation models and regulation and trading and wholesale market and retail market and purpose of energy market analysis and structure and market volume and value and competitors and drivers of demand and resources and understanding energy market trends, and apply proper energy market deregulation and pricing and risk management and intelligence and liberalization methods including meaning and purpose and types and examples of deregulated energy states and significant factors that determine energy market prices and who sets the price and trends that affect pricing and price setting strategy and process of speculating on energy price and profits and loss and rights and obligation and exercise or abandonment and pricing variables and measuring risk and the forward market and the futures market and the swaps market and the options and crack spreads and meaning and purpose and sources and process of gathering energy market intelligence and skills required and ethics and meaning and rationale behind liberalization and stages and benefits and disadvantages to ensure organizations achieve superior US electricity deregulation and market power analysis and enhanced utility company market intelligence programs and improved WTI crude oil derivative hedging frameworks and competitive advantage through continuous market-structure monitoring and pricing-strategy development and derivative-based risk management governance protocols.

Research demonstrates training is crucial for success, with the MacKay and Mercadal deregulation research showing that energy analysts and policymakers who understand the interaction between market structure and market power and pricing outcomes are better equipped to anticipate how transitions from regulated to competitive markets affect prices and consumer welfare with the course’s detailed coverage of deregulation types and examples and transition mechanisms and pricing strategies building exactly this analytical competence, while the Infiniti Research utility case illustrating that professionals who can gather and analyze and interpret market intelligence including competitor data and pricing trends and consumer demand shifts enable their organizations to make strategic decisions with greater confidence and lower uncertainty with the course’s module on energy market intelligence covering sources and gathering processes and required skills and ethics preparing professionals to develop and deliver intelligence reports that directly influence competitive strategy, and the CFTC WTI swaps and futures analysis demonstrating that energy professionals who understand how futures contracts and OTC swaps and forwards each function can design and implement risk management programs that protect their organizations from commodity price swings and improve financial predictability.

Course Objectives

Upon successful completion, participants will have demonstrated mastery of:

• Understanding the basics and operation and design and functioning of the energy market and the economic principles underlying it
• Becoming experts in energy market analysis and energy market intelligence
• Broadly estimating energy markets and trends
• Thoroughly understanding what energy market deregulation is and the reasons for implementing it
• Thoroughly understanding the key concepts of deregulation in the energy market including open access and market power and sufficient supply
• Identifying the transition mechanisms utilized when markets are transitioning from regulated to competitive markets, including the distinction between apparent deregulation and effective deregulation where incumbent utilities maintain vertical integration through contracts and umbrella ownership​
• Recognizing the strategies of pricing in energy markets to help identify future pricing trends
• Improving knowledge on gathering and using and analyzing energy data to inform strategic decision-making under uncertainty and forecasting
• Examining how deregulation and liberalization affect the energy market including how market power can lead to price increases that outweigh cost efficiency gains​
• Designing and implementing derivative-based price risk management programs using OTC swaps and NYMEX futures and options to protect organizations from commodity price swings

Master advanced energy market analysis and deregulation and price intelligence and liberalization excellence and drive market intelligence and derivative hedging success. Enroll today to become a Certified Energy Market Analysis and Liberalization Professional!

Training Methodology

This Advanced Energy Market Analysis, Deregulation, Price, Intelligence and Liberalization Course comprises the following training methods:

The training framework includes:

• Expert-led sessions facilitated by experienced professionals from the relevant domain
• Classroom sessions and practical exercises and role-plays reinforcing learning of concepts and problems covered in class
• Group projects and tasks encouraging interaction among trainees and between the trainer and the facilitators
• Assignments applying difference-in-differences analysis frameworks to deregulation impact assessment and market intelligence gathering processes to competitive energy market evaluation
• Case Studies and Functional Exercises including MacKay and Mercadal US electricity sector deregulation and market power analysis and Infiniti Research utility company comprehensive market intelligence program and CFTC WTI crude oil swaps and futures integrated derivative hedging analysis

This immersive approach fosters practical skill development and real-world application of energy market analysis and deregulation and price intelligence and liberalization principles through comprehensive coverage of energy overview and commodities and energy market overview and types and market analysis and deregulation and pricing and risk management and intelligence and liberalization domains with emphasis on measurable competitive-advantage improvement and price-risk reduction and regulatory-compliance enhancement.

This program follows the Do-Review-Learn-Apply model, creating a structured learning journey that transforms traditional energy market approaches into professional advanced energy market analysis and deregulation and price intelligence and liberalization excellence.

Who Should Attend?

This Advanced Energy Market Analysis, Deregulation, Price, Intelligence and Liberalization Course is designed for:

• Senior management officers involved in creating strategies to ensure that the company achieves a higher presence in the energy market
• Policymakers, advisors, and regulators charged with formulating requisite and forward-thinking policies that help incentivize investment in energy
• Financial institutions considering investing in the energy market or advising high-value clients to diversify their portfolios to include energy assets or energy companies
• Energy procurement managers responsible for choosing the most effective energy procurement plan
• Energy professionals looking for a recognized path to career progression or exposure to other areas of energy
• Power market analysts responsible for tracking the energy market

Organizational Benefits

Organizations implementing advanced energy market analysis training will benefit through:

• Significantly enhanced US electricity deregulation and market power analysis capability through comprehensive training delivering measurable competitive-advantage returns where MacKay and Mercadal confirmed that deregulation does not necessarily lead to lower prices to consumers and that their findings point to the importance of careful market design and market monitoring in electricity markets to guarantee that consumers benefit from the cost savings that resulted from deregulation, with the research distinguishing between apparent deregulation defined as the share of a market supplied by companies other than the incumbent utility and effective deregulation defined as the share of a market supplied by companies unaffiliated with the incumbent and finding that the use of contracts with affiliated companies delayed the onset of effective deregulation by many years compared to apparent deregulation directly reflecting the course’s coverage of deregulation types and market power and open access and regulatory design​
• Better utility company energy market intelligence and competitive benchmarking through Infiniti Research confirming that the market intelligence engagement prioritized investment in R&D targeting renewable technologies and smart grid innovations to remain competitive and developed pricing analysis strategies to navigate price volatility ensuring profitability across diverse energy markets and recommended sustainability initiatives to meet environmental compliance while fostering sustainable growth, with the engagement demonstrating how structured energy market intelligence directly improves organizational strategic decision-making as organizations benefit from professionals trained in market engineering frameworks and market trend assessment and cutting-edge technology implementation to optimize operations and reduce costs validating course content​
• Improved WTI crude oil OTC swaps and NYMEX futures integration and price risk management through Mixon and Onur and Riggs confirming that commercial end-users have a much larger footprint in the WTI swaps space than financial end-users do and that the net short position of Commercial End-Users in swaps always exceeded the net long position of Financial End-Users and that swap dealers perform a substantial amount of intermediation among WTI longs and WTI shorts and index investors with net dealer exposure to hedge in futures markets far less than the gross swap exposure, with organizations benefiting from personnel who understand how futures contracts and OTC swaps and forwards each function to design and implement risk management programs protecting the organization from commodity price swings
• Strengthened competitive advantage through effective and accurate energy market analysis by experienced and trained professionals to improve competitive advantage and effective projection of trends and developments in the energy market and regular training of other employees on identifying opportunities and anticipating market trends and shifts and mitigating risk in the energy market and application of new methods of gathering intelligence to develop solutions and make projections to handle future problems and identification of effective pricing strategy to counter competition and build a more attractive product image in the energy sector

Studies show that organizations implementing comprehensive advanced energy market analysis training achieve significantly enhanced delivery outcomes as research confirms MacKay and Mercadal’s construction of a unique dataset covering annual electricity flows from generation to final consumption for each electric utility territory from 1994 through 2016 including purchases through bilateral contracts in addition to purchases in the centralized wholesale markets run by independent system operators which were over 85 percent of wholesale electricity sold between 2000 and 2016 and the finding that deregulation in the US has resulted in increased prices from market power with this effect dominating cost efficiencies reinforcing the course’s emphasis on deregulation types and market power and pricing dynamics and transition mechanisms, better organizational outcomes through Infiniti Research evidence demonstrating that organizations implementing comprehensive market intelligence programs covering competitive landscape analysis and customer behavior research and pricing strategy development and environmental sustainability roadmapping can reduce customer churn and navigate price volatility profitably and identify regulatory opportunities early and position themselves for sustainable growth confirming the organizational value of training professionals in energy market intelligence sources and gathering processes and analysis skills and ethics, and improved competitive positioning as Mixon and Onur and Riggs confirmed that swap dealers appear to have a very modest net position in swaps compared to their much larger gross position which is negatively correlated with their futures exposure being suggestive of active management to neutralize exposures to WTI price changes with organizations benefiting from personnel who understand the interconnected forward and futures and swaps market mechanics and counterparty-risk considerations and crack spreads and options.

Empower your organization with advanced energy market analysis and deregulation and price intelligence and liberalization expertise. Enroll your team today and see the transformation in market power analysis and derivative hedging and energy market intelligence excellence!

Personal Benefits

Professionals implementing advanced energy market analysis training will benefit through:

• Deeper understanding of US electricity deregulation and market power mastery and strategic policy-advisory value-addition through the MacKay and Mercadal research showing that energy analysts and policymakers who understand the interaction between market structure and market power and pricing outcomes are better equipped to anticipate how transitions from regulated to competitive markets affect prices and consumer welfare, with the course’s detailed coverage of deregulation types and examples and transition mechanisms and pricing strategies building exactly this analytical competence and enhancing value to regulators and financial institutions and energy companies​
• Enhanced energy market intelligence mastery and competitive-strategy value-addition through the Infiniti Research utility case illustrating that professionals who can gather and analyze and interpret market intelligence including competitor data and pricing trends and consumer demand shifts enable their organizations to make strategic decisions with greater confidence and lower uncertainty, with the course’s module on energy market intelligence covering sources and gathering processes and required skills and ethics preparing professionals to develop and deliver intelligence reports that directly influence competitive strategy​
• Stronger WTI crude oil derivative hedging mastery and price-risk management value-addition through the CFTC WTI swaps and futures analysis demonstrating that energy professionals who understand how futures contracts and OTC swaps and forwards each function including their respective advantages of standardization and customization and liquidity can design and implement risk management programs that protect their organizations from commodity price swings and improve financial predictability, with Module 9 of this course covering forward and futures and swaps markets and options and crack spreads equipping professionals with quantitative and conceptual tools to make and communicate risk management decisions confidently
• Advanced expertise in energy market analysis principles, deregulation and liberalization frameworks, and price risk management and market intelligence integration domains
• Enhanced career prospects and marketability in energy market analysis, power market regulation, utility company strategic planning, energy procurement, energy price risk management, and energy market intelligence sectors with professionals gaining skills in market-power analysis, difference-in-differences deregulation assessment, OTC swap and NYMEX futures hedging, crack spread calculation, and energy market intelligence ethics
• Comprehensive understanding of basics and operation and design and functioning of the energy market and the economic principles underlying it and recognition of issues with price volatility and understanding of price risk management and measuring risk and the forward and futures and swaps markets
• Improved knowledge on gathering and using and analyzing energy data to inform strategic decision-making under uncertainty and in forecasting and adequate qualitative and quantitative estimation of the energy market for business planning

Course Outline

Module 1: Overview of Energy

• Meaning
• Sources
• Types of Energy
• Primary and secondary energy distinctions
• Global energy mix and transition trends

Module 2: Energy Commodities

• Meaning of energy commodities
• Role of energy commodities
• Key traded energy commodities and their markets
• Commodity price drivers and volatility factors

Module 3: Overview of The Energy Market

• Meaning
• Scope of the energy market
• Why is the energy market so important?
• Major agents in the energy market
• What influence their design and regulation
• Obstacles of the energy market
• Operation models of the energy market
• Regulation
• Trading
• Market concentration and entry barriers
• Bilateral contracts versus centralised market trading

Module 4: Types of Energy Market

• Wholesale Market
• Retail Market
• Spot versus forward market structures
• Vertically integrated versus unbundled market models

Module 5: Energy Market Analysis

• Purpose of energy market analysis
• Structure
• Market volume and value
• Competitors
• Drivers of demand
• Resources
• Understanding energy market trends
• Difference-in-differences approach to market impact assessment
• Competitive benchmarking and market share analysis

Module 6: Energy Market Deregulation

• Meaning
• Purpose
• Types
• Examples of deregulated energy states
• Market power and markup dynamics in deregulated markets
• Apparent versus effective deregulation distinctions

Module 7: Overview of the Energy Market Price

• Significant factors that determine energy market prices
• Who sets the price in the energy market
• Trends that affect pricing
• Price setting strategy
• Process of speculating on energy price
• Marginal cost pricing and retail price pass-through
• Impact of market power on consumer prices

Module 8: Principles of Pricing

• Profits and Loss
• Rights and Obligation
• Exercise or Abandonment
• Pricing variables
• Price elasticity and demand response effects
• Pricing strategy under competitive and regulated conditions

Module 9: Energy Price Risk Management

• Measuring risk
• The forward market
• The futures market
• The swaps market
• The options
• Crack spreads
• OTC swaps versus NYMEX futures for commodity hedging
• Swap dealer intermediation and risk transfer mechanics

Module 10: Energy Market Intelligence

• Meaning
• Purpose
• Sources
• The process of gathering energy market intelligence
• Skills required to gather energy market intelligence
• Ethics
• Market engineering frameworks for strategic decision-making
• Pricing analysis and sustainability roadmapping applications

Module 11: Energy Market Liberalisation

• Meaning
• Rationale behind liberalisation
• Stages of Liberalisation
• Benefits of Liberalisation
• Disadvantages of Liberalisation
• Regulatory design to prevent market power post-liberalisation
• Consumer protection mechanisms in liberalised markets

Real World Examples

US electricity sector deregulation – Market power and prices (MacKay and Mercadal)

Implementation: Alexander MacKay and Ignacia Mercadal at MIT CEEPR studied US state-level electricity deregulation that began in the late 1990s when several states started to restructure the electricity sector replacing regulated and vertically integrated utilities with wholesale and retail markets open to many competitors, constructing a unique dataset that covers the annual electricity flows from generation to final consumption for each electric utility territory from 1994 through 2016 including purchases through bilateral contracts in addition to purchases in the centralized wholesale markets run by independent system operators where over 85 percent of wholesale electricity from 2000 through 2016 was sold through such contracts outside of centralized markets thus allowing for a broader analysis of prices and the interactions between upstream and downstream market participants. The researchers used a difference-in-differences matching approach comparing utilities subject to state-specific deregulation policies to similar utilities in other states that remained tightly regulated and found that deregulation efforts included the introduction of market-based prices and restructuring measures to introduce competition into the upstream generation market and the downstream retail market, with the research crucially measuring market power using markups defined as the difference between price and marginal cost and confirming that market power can exist even with competitive market mechanisms such as auctions when there are a limited number of potential suppliers and that entry barriers and other market features lead firms to charge markups in equilibrium. The dataset revealed that utilities maintained a high degree of vertical integration through contracts and umbrella ownership where different companies are subsidiaries of the same parent or holding company leading to the distinction between apparent deregulation defined as the share of a market supplied by companies other than the incumbent utility and effective deregulation defined as the share of a market supplied by companies unaffiliated with the incumbent, with caps on retail rates and other factors also slowing the introduction of competitive supply at the retail level.​

Results: MacKay and Mercadal found substantial price increases for consumers in deregulated states relative to consumers in regulated states with marginal costs declining in deregulated states indicating that higher prices are driven by higher markups, with gross markups increasing by 15 dollars per MWh from 2000 to 2016 corresponding to a 19 percent increase in prices relative to 1999 price levels and wholesale markups increasing by roughly 9 dollars per MWh representing over 60 percent of the overall increase in gross markups making market power in the generation market the primary driver of price increases. Results confirmed that the researchers believe they are the first to show that electric deregulation in the US has resulted in increased prices from market power and that this effect has dominated cost efficiencies and that though there was early awareness of the potential for market power in deregulated markets the fact that the effects of market power could considerably exceed the savings from increased cost efficiency is surprising, with findings pointing to the importance of careful market design and market monitoring in electricity markets to guarantee that consumers benefit from the cost savings that resulted from deregulation illustrating the deregulation types and market power and pricing dynamics and transition mechanisms taught throughout this course.​

Infiniti Research – Market intelligence program for a utility company

Implementation: Infiniti Research’s AVP of Market Research described a project for a leading US-based utility company that sought comprehensive market intelligence to navigate the evolving energy landscape in primary areas including transitioning to renewable energy sources and improving customer engagement through technology and navigating regulatory challenges effectively, with the utility company operating in the energy sector facing challenges from intense competition and customer attrition and price volatility and the need to meet environmental compliance standards while fostering sustainable growth. The market intelligence solution comprised three strategic components of Market Engineering developing frameworks that align business objectives with market dynamics, Assessment of Market Trends utilizing data analytics to understand emerging trends and consumer preferences, and Technology Know-Hows implementing cutting-edge technologies to optimize operations and reduce costs, with the engagement providing actionable insights directed toward Investment in R&D prioritizing research into renewable technologies and smart grid innovations to remain competitive. Pricing Analysis developed strategies to navigate price volatility ensuring profitability across diverse energy markets and a Sustainability Roadmap recommended initiatives to meet environmental compliance while fostering sustainable growth, with the comprehensive market intelligence program enabling the utility company to equip itself with actionable insights to drive impactful decisions by leveraging innovative solutions and focusing on sustainable practices to enhance market presence and drive long-term success in the evolving energy landscape.​

Results: The market intelligence engagement confirmed that comprehensive market intelligence can empower utility companies to navigate challenges effectively while capitalizing on new opportunities and that by leveraging innovative solutions and focusing on sustainable practices the client was well-positioned to enhance their market presence and drive long-term success in the evolving energy landscape, demonstrating how structured energy market intelligence directly improves organizational strategic decision-making through the market intelligence gathering process and analysis skills and ethical standards covered in this course’s energy market intelligence module. Results illustrated that the integration of strategic insights with actionable solutions provides a roadmap for utility companies aiming to thrive amidst regulatory pressures and market fluctuations confirming that professionals who can gather and analyze and interpret market intelligence including competitor data and pricing trends and consumer demand shifts enable their organizations to make strategic decisions with greater confidence and lower uncertainty.​

CFTC – WTI crude oil swaps and futures: integrated analysis of energy hedging in practice

Implementation: CFTC economists Scott Mixon and Esen Onur and Lynn Riggs from the Office of the Chief Economist published the first public analysis of a new commodity swap dataset collected by the CFTC under Dodd-Frank covering daily observations reported by swap dealers on both commodity index and commodity-specific swap transactions providing unprecedented visibility into swap market activities, using data from Large Trader Reporting for Physical Commodity Swaps from June 1 2015 to June 30 2015 and covering the WTI analysis period from April 1 2014 to December 31 2015 and using the CFTC’s Disaggregated Commitments of Traders report for NYMEX Crude Oil Light Sweet futures and options combined covering January 1 2014 to December 31 2015. The paper explained that like most other swaps a commodity swap is a legally binding agreement where two counterparties agree to swap cash flows at regular intervals over a specified period with one cash flow based on a floating price tied to the price of a commodity and the other cash flow usually based on an agreed-upon fixed price with the floating price determined using a specific price series such as the price of the main physical-delivery futures contract published by the exchange, with the fact that a fixed price for a fixed amount of the commodity is exchanged for a fluctuating market price making swaps an ideal instrument for hedging in that a producer who does not want to be exposed to fluctuating prices in the spot market can enter into a swap agreement where he receives the difference between the fixed price and the floating market price at pre-specified intervals. One key difference between swaps and futures confirmed in the paper is that futures are highly standardized contracts while swaps can be customized to better hedge the price risk of the commodity for the counterparty with the standardized nature of futures contracts making them more amenable to being traded on an exchange whereas most commodity swaps are traded OTC, and that an end-user wanting to use a swap to hedge will generally contact an intermediary swap dealer to be a counterparty to the transaction while the swap allows the end-user to hedge price risk though that risk does not disappear but is transferred to the swap dealer who will generally look for a market that is liquid enough and correlated enough with the price of the underlying such as the NYMEX Light Sweet Crude Oil WTI futures market.

Results: Mixon and Onur and Riggs presented new findings confirming that Commercial End-Users have a much larger footprint in the WTI swaps space than Financial End-Users do with the net short position of Commercial End-Users in swaps always exceeding the net long position of Financial End-Users and that Commercial End-Users have a much larger net exposure in swaps than in futures whereas Financial End-Users are smaller in swaps than in futures, and that Swap Dealers appear to have a very modest net position in swaps compared to their much larger gross position which is negatively correlated with their futures exposure being suggestive of active management to neutralize exposures to WTI price changes. Results confirmed that there is widespread use of various commodity derivatives including swaps by commercial firms for hedging with Acharya et al. 2013 finding that nearly 90 percent of oil and gas producers surveyed use derivatives to hedge with over 80 percent using OTC swaps and options including collars and nearly half also using futures or forwards, providing real-world context for this course’s coverage of the forward market and futures market and swaps market and options in Module 9 and illustrating how the instrument hierarchy from customized to standardized products functions in the live energy market.

Be inspired by leading advanced energy market analysis and deregulation and price intelligence and liberalization achievements. Register now to build the skills your organization needs for market power analysis and derivative hedging and energy market intelligence excellence!