The commodities roller coaster: Liquidity and market structure in volatile markets

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Author(s): 
Cosmina Amariei

In the midst of the recent fall in oil prices and renewed unconventional monetary policy actions, ECMI organised a half-day conference to explore how commodity prices are once again reacting to recent market developments. In the first session, panellists discussed how the current market conditions and regulatory developments (e.g. position limits, ancillary activities) are impacting liquidity in commodity finance. As banks reorganise their participation in physical and paper commodity markets, other actors, such as commodity trading firms, are advancing and reshaping their businesses to cope with the ‘new normal’ and are attempting to make their business and risk management practices more transparent.

Discussions in the second session focused on oil prices, which have dropped by more than half since June 2014, following two decades of relative stability. This dramatic drop, which sets a new normal for oil prices, is driven by different factors threatens to scale down investments in unconventional sources and may ultimately trigger changes in energy policies around the globe. The oversupply of oil in the United States has had a major impact on prices. Prolonged uncertainty in price levels can also have long-lasting effects on the supply and demand structure, with effects on other commodities too.