Energy hedging is down but not out

Market conditions will change, bringing liquidity back

To hedge you need three things: a risk you are not prepared to tolerate; a counterparty willing to be paid to take the risk on your behalf; and a chosen venue for negotiating and confirming the hedging transaction. All three have changed dramatically in the energy market in the last five years, with a real impact on the volume of hedging going on in the industry; the question now is how many of the changes are permanent.

One primary cause – the low price of oil – is clearly cyclical rather than