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Financial stability risks from energy derivatives markets

Author

Listed:
  • Furtuna, Oana
  • Grassi, Alberto
  • Ianiro, Annalaura
  • Kallage, Kristina
  • Koci, Robert
  • Lenoci, Francesca
  • Sowiński, Andrzej
  • Vacirca, Francesco

Abstract

Energy sector firms use energy derivatives under different strategies depending on their main area of activity, business model and exposure to risk in physical markets. The significant volatility and skyrocketing prices seen in energy markets since March 2022 have resulted in large margin calls, generating liquidity risks for derivatives users. Strategies employed by companies to alleviate liquidity stress may lead to an accumulation of credit risk for their lenders or their counterparties in less collateralised segments of the derivatives market. Further price increases would accentuate nascent vulnerabilities, creating additional stress in a concentrated market. These issues underline the need to review margining practices and enhance the liquidity preparedness of all market participants to deal with large margin calls. JEL Classification: Q02, G13, G20

Suggested Citation

  • Furtuna, Oana & Grassi, Alberto & Ianiro, Annalaura & Kallage, Kristina & Koci, Robert & Lenoci, Francesca & Sowiński, Andrzej & Vacirca, Francesco, 2022. "Financial stability risks from energy derivatives markets," Financial Stability Review, European Central Bank, vol. 2.
    • Handle: RePEc:ecb:fsrart:2022:0002:1
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    File URL: https://www.ecb.europa.eu//pub/financial-stability/fsr/special/html/ecb.fsrart202211_01~173476301a.en.html
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    Citations

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    Cited by:

    1. Oleksandr Castello & Marina Resta, 2023. "A Machine-Learning-Based Approach for Natural Gas Futures Curve Modeling," Energies, MDPI, vol. 16(12), pages 1-22, June.

    More about this item

    Keywords

    energy derivatives; energy firms; initial margins; variation margins; commodity derivatives pricing;
    All these keywords.

    JEL classification:

    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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