IEA holds Oil Price Formation Workshop in Tokyo, Japan

1 March 2010 1 March 2010

BonTrade

The IEA yesterday held an “Oil Price Formation Workshop” in Tokyo with the Institute of Energy Economics Japan, including over 80 participants from the oil industry, financial institutions, regulators and exchanges.

The IEA stated that greater transparency of oil supply and oil demand data and a global effort to improve regulation of over the counter markets are needed to avoid excessive swings in oil prices.

“Regulatory authorities in many countries are cautious about systemic risks that could be led by a lack of transparency in OTC transactions,” IEA Executive Director Nobuo Tanaka said in an interview in Tokyo today. “It is very important to expand the network of transparency.”

A lack of transparency in the OTC market contributes to systemic risk, the Commodity Futures Trading Commission Chairman Gary Gensler said in January. The US regulator chief has asked Congress for the power to regulate the $300 trillion OTC derivatives market to govern commodity speculation outside of regulated exchanges.

Gensler had outlined a three pronged approach: regulate derivatives dealers, bring transparency to the OTC market, and move standard derivatives to regulated clearinghouses. He cited estimates that half of all commodity and energy derivatives transactions could be standardised.

“Improved data on demand, supply and stocks are key to a better grasp on market fundamentals, notably in the emerging markets that are now playing an increasing role, such as Asia,” the statement said. “Equally important is greater granularity on financial market information.”

The joint statement also said many workshop participants warned that should coming regulation prove “too stringent” it would impair oil market liquidity and the ability to manage risks.

Previous IEA oil price workshops were held in New York in 2004 and Paris in 2008.