Sparking innovation

Energy derivatives were born and matured in the crude oil markets, spurred by price deregulation and the emergence of freely-traded spot markets. When these forces converged, financial engineers at investment banks swooped to apply financial market theory to commodities, creating and feeding ever-growing end-user appetite for price risk management tools.

Deregulation in the domestic US natural gas markets in the late 1980s, followed by the UK electricity market from 1990, opened up the next oppo