Global energy market: speculate or regulate?

2 08 2009

The recent turmoil in the commodities market, according to Thomas Kostigen, is due in large part to speculative trading. Across a range of different sectors, from energy to agriculture, speculators have traded in commodities for the sole purpose of making profit. Whilst most would agree that investment capital is needed to help stimulate specific markets at different times, in his column for MarketWatch, Kostigen writes:

Commodities aren’t like companies. They represent our natural resources. They are the raw products we need to survive and maintain our way of life. When rogue traders affect the stock market, a company loses capital access. When a rogue trader affects the commodities markets, the lights can go out. Think that’s extreme? Go back a few years and take a look at what Enron’s energy traders did to manipulate the market; lights in California went out.

His solution?

A new regulatory system should be put in place to rein in traders. Otherwise, with natural resource supplies dwindling and demand increasing, we face a dire future. It shouldn’t be put into the hands of people looking to turn a quick profit.

The sentiment, perhaps, is spot on. Exactly what kind of functions a new regulatory body for energy markets can perform, however, remains to be seen. The debate, still in its infancy, continues.

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