Energy Department Puts Energy Prices Under Microscope

Global Oil Demand by IEA

Richard Newell, the recently appointed administrator of the Energy Information Administration, launched an Energy and Financial Markets Initiative today to improve understanding and analysis of what drives energy prices.

“EIA’s traditional coverage of ‘fundamentals’ such as energyconsumption, production, inventories, spare production capacity, andgeopolitical risks is essential, but moving forward EIA must alsoassess other influences, such as speculation, hedging, investment, andexchange rates, as we seek to fully understand energy price movements,”Newell said. “The initiative I am launching today will help improveenergy market transparency, support sound policy and efficient markets,and increase public understanding-activities that are central to EIA’smission.”

The initiative will focus on the following  four main areas:

  1. Collection of critical information on factors affecting energy prices;
  2. Analysis through in-depth studies of energy market behavior;
  3. Outreach to solicit feedback from a broad range of experts on the interrelationship of energy and financial markets; and
  4. Coordination with other Federal agencies engaged in energy marketinformation collection and analysis. Collection of Critical EnergyInformation to Improve Market Transparency

By November 2009, the EIA plans to  publish a Federal Registernotice seeking input to identify the best data for understandingrelationships among physical inventories, prices, and market activity.In addition, EIA will expand its collection of commercial oil andrefined products storage capacity data beginning in early 2010 (EIAalready tracks natural gas storage capacity). Similar data collectionswere specified in the American Clean Energy Leadership Act of 2009 (S.1462), adopted earlier this year by the Senate Committee on Energy andNatural Resources. 

EIA will seek market data from other Federal agencies, includingfrom the Commodity Futures Trading Commission, to analyze the influenceof futures and related financial market activity on energy prices inthe context of other energy market factors. Based on this information,EIA will create a comprehensive assessment of remaining energyinformation gaps in physical and financial markets, and it will developa strategy to obtain the necessary data. 

By October 2009, EIA will publish its semi-annual report, MarketAssessment of Planned Refinery Outages, which will identify regionswhere planned refinery outages may affect supply and prices thiswinter. In November, EIA will publish its assessment of the need tocollect any additional data in the future to examine the impacts ofplanned refinery outages. Analysis of Energy and Financial MarketDynamics EIA will develop analytical reports that identify the manyfactors potentially influencing oil and other energy prices-includingconsumption, production, inventories, spare production capacity,geopolitical risks, speculation, hedging, investment, and exchangerates-and describe the relationship of these factors to prices, thetimeframes over which these relationships tend to hold, and themechanisms underlying them.

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