Here's an energy wonk post for you since I have not done one of those for awhile...
On April 16, Federal Energy Regulatory Commission (FERC) staff from the Office of Enforcement gave a presentation on the State of the [Energy] Markets. The presentation is quite interesting, if you follow energy issues, because it provides a little color commentary on what proved to be a very strange year in the natural gas and electrical markets.
Of particular note, the presentation states that market fundamentals alone do not explain the wide flux in natural gas prices seen in 2008. While there are several discrete factors that helped to influence price volatility (decrease in LNG import, a tight gas market, etc.) “…none of the market fundamentals were extreme enough to explain why spot Henry Hub prices reached $13.31/MMBtu by July 3.”
Interestingly, the presentation goes on to say that “…the rise in natural gas prices coincided with a global increase in many commodity prices. This increase in commodity prices occurred as large pools of capital flowed into various financial instruments that essentially turn commodities like natural gas into investment vehicles. Ultimately, we believe that financial fundamentals along with a modest tightening in the supply and demand balance for gas during the first part of the 2008 explains natural gas prices during the year.”
Now, wait just a cotton-picking minute....
Don’t those two statements kind of contradict each other? It seems more likely to me that the coincidence of commodities speculation has more than a little to do with this issue, but FERC only goes as far as to note the coincidental timing, but reverts to believing it’s fundamentals after all.
Why would they take this seemingly contrary position? Because they regulate the energy markets, but they can’t regulate the free market and commodity speculation, that’s why.
Chilling. No pun intended.