Do futures trading and commodity trading distort the spot price in a negative way?

[Sig]

I see whatever you said here is BS. Who knows about your claims?

The physical commodities are not even regulated. You can't even back up yourself....

Yeah, I have worked extensively in energy spot markets although admittedly not gas. Spot markets without a forward or futures market can be incredibly volatile because just a small imbalance in supply or demand at a given time swings the entire market. With futures most of the market is locked into a price in advance, so if there is a shortfall it only impacts the tiny unhedged portion of the market.

Note that isn't saying a huge futures market full of speculators is necessary, but no futures or forwards market at all is in my experience worse than one full of speculators.

 

[RedSun]

Yeah, I have worked extensively in energy spot markets although admittedly not gas. Spot markets without a forward or futures market can be incredibly volatile because just a small imbalance in supply or demand at a given time swings the entire market. With futures most of the market is locked into a price in advance, so if there is a shortfall it only impacts the tiny unhedged portion of the market.

Note that isn't saying a huge futures market full of speculators is necessary, but no futures or forwards market at all is in my experience worse than one full of speculators.

Not true at all. In NG market, we have a lot of nat gas storage. We can even draw nat gas line pack if we need to. We could run several BCF out of the pipe without any structural risk.

Same with oil market. There are storage tanks at all port terminals. We also have a lot of reserves.

The only thing volatile is the electricity market, like what happened in Texas this spring. But the ERCOT design has flaw since power generators are not paid for reserve margins like in PJM. It also have structural flaws of gas pipeline not insulated and water cooling line not insulated.

It is very interesting to see so many people claim they work for energy firms and do not show the evidence of how the physical energy markets work.....

 

[RedSun]

Also, I never recall ERCOT price was ever to the $500 or $1,000 before ERCOT started operating in early 2000s. When the market opened open and became unregulated, all the speculators came in and control the market.... Distortion? certainly.

 

[Sig]

Also, I never recall ERCOT price was ever to the $500 or $1,000 before ERCOT started operating in early 2000s. When the market opened open and became unregulated, all the speculators came in and control the market.... Distortion? certainly.

It was vertically integrated, all generation was owned by the regulated monopoly electric companies for their service territories. There wasn't a market since it was a monopoly, so there weren't spot market prices.

 

[RedSun]

You get this right this time.

As one of the largest public utility, we used to own lignite mines, nat gas pipelines, many GW of power gen and serve a significant portion of the state's gas and electricity supplies. All the end users were very happy. Never any price spikes like what we are getting now.

Look at what happened early of this year in Texas. But there is no going back unfortunately.

We may see $100 nat spot prices some days. Same with power prices.

 

[schizo]

I hear about silver being a manipulated commodity; some people even imply that futures and commodity trading have helped keep speculators invest their money in those assets thus reducing the overall inflation in the broader economy as their money chase may be S&P 500 futures instead of investing that money into the "real" economy.

You forget that the largest participants of the futures market are not speculators but hedgers. It's not the speculators but hedgers that move the market. And hedgers are those who hedge their underlying position in the "real" economy.

 

[Sig]

You get this right this time.

As one of the largest public utility, we used to own lignite mines, nat gas pipelines, many GW of power gen and serve a significant portion of the state's gas and electricity supplies. All the end users were very happy. Never any price spikes like what we are getting now.

Look at what happened early of this year in Texas. But there is no going back unfortunately.

We may see $100 nat spot prices some days. Same with power prices.

Well they were happy that the power went out, I don't think they were happy to be paying billions unnecessarily to a monopoly to get guaranteed 10% returns on their investment. Power is significantly cheaper in a deregulated market over the course of a year even with a couple if days of high prices factored in. Nobody wants to go back to a monopoly except the people who own the monopoly. As I think you mentioned, ERCOTs problem wasn't that it was a competitive power market, it's that it was a competitive power market with no corresponding capacity market, something we have all been warning them about literally for years.

 

[RedSun]

Not really at all.

In a regulated energy market, we would not see $6 nat gas price. Or $85 crude oil price. It is a fallacy to state that de-regulated energy markets are cheaper than regulated.

All utilities are investor owned. The rates are regulated by the PUCs. Local utilities are still regulated by the PUCs now, just not the core energy part which has been de-regulated.

It is just absurd to see that a lot of the power plants are owned by private equities and hedge funds. They are there for the profit only, even worse than investor owned utilities.

 

[RedSun]

You forget that the largest participants of the futures market are not speculators but hedgers. It's not the speculators but hedgers that move the market. And hedgers are those who hedge their underlying position in the "real" economy.

I'd like to LOL about your statement. Hedgers who move the market? They are the market takers. After they put on the hedges, they are done. They rarely unwind the positions.

Take a look at the CFTC COT reports. You can see who are trading those futures contracts. Swap dealers and large money managers....

 

[Sig]

Not really at all.

In a regulated energy market, we would not see $6 nat gas price. Or $85 crude oil price. It is a fallacy to state that de-regulated energy markets are cheaper than regulated.

All utilities are investor owned. The rates are regulated by the PUCs. Local utilities are still regulated by the PUCs now, just not the core energy part which has been de-regulated.

It is just absurd to see that a lot of the power plants are owned by private equities and hedge funds. They are there for the profit only, even worse than investor owned utilities.

A free market where power producers compete to produce power at the cheapest cost is better than a monopoly? You know there isn't a merchant power producer out there getting the 8-12% guaranteed returns a monopoly utility gets, right? So the monopoly is soaking ratepayers, the competitive market is saving them money. It's crazy to hear someone arguing for a monopoly!