The Energy Information Administration (EIA) last Wednesday launched an initiative aimed at improving its ability to understand and analyze what drives energy prices, including speculation and hedging.
"EIA's traditional coverage of 'fundamentals,' such as energy consumption, production, inventories, spare production capacity and geopolitical risks, is essential, but moving forward EIA must also assess other influences, such as speculation, hedging, investment and exchange rates, as we seek to fully understand energy price movements," said EIA Administrator Richard Newell. A number of federal agencies are taking a closer look at speculation in energy markets (see NGI, Sept. 7; Aug. 17).
The new Energy and Financial Markets Initiative (EFMI) "will help improve energy market transparency, support sound policy and efficient markets and increase public understanding -- activities that are central to EIA's mission," he said.
Newell said he formed an EFMI analysis team to augment EIA's strength in fundamentals analysis and to focus on four main areas: collecting critical information on factors affecting energy prices; analyzing energy market behavior through in-depth studies; soliciting feedback from a broad range of experts on the interrelationship of energy and financial markets; and coordinating with other federal agencies that collect and analyze energy market information.
To improve market transparency, the EIA said it plans to publish a notice in the Federal Register by November to solicit input identifying the best data to understand the relationships among physical inventories, prices and market activity. It also will expand its collection of commercial oil and refined products storage capacity data beginning in early 2010, according to the agency.
Moreover the EIA, the statistical arm of the Department of Energy (DOE), said it will seek market data from sister agencies to assess the influence of futures and related financial market activity on energy prices. And it noted that over the next year it will conduct a "comprehensive assessment" of the gaps in energy information in both the physical and financial markets, and will develop a strategy to obtain the needed data.
The agency said it will develop analytical reports identifying the many factors potentially influencing energy prices -- both the fundamentals and financial influences -- and will describe the relationship of these factors to prices, and the time frames over which these relationships tend to hold.
By October of this year, the EIA said, its short-term crude oil and natural gas price forecasts will better reflect the volatility and uncertainty surrounding energy prices. The energy outlooks will publish a "quantitative measure of price certainty" with respect to oil and gas futures prices, based on information from futures and options markets.
A panel of experts from industry, financial institutions and academia will be established to review and provide independent advice on EIA reports, analyses and other products developed under the EFMI. And the EIA will solicit advice and input from the Commodity Futures Trading Commission, the Department of Treasury, the Federal Energy Regulatory Commission, the Federal Reserve, the Federal Trade Commission the Securities and Exchange Commission, and other offices in the DOE.
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