Energy Markets

[Page 1120]Energy markets are markets in which energy commodities, and derivative contracts based on those commodities, are bought and sold. Major energy commodities include natural gas, crude oil, electricity (power), weather products, and emissions contracts. Due to challenges of storage and transmission, the use of energy for production of intermediate goods, and its impact on the costs of consumption, energy commodities and derivatives assets based on them can display economic properties, including high fixed costs, inelastic demand, and sudden spikes in prices. As a natural resource historically found abundant in difficult geopolitical regions, some energy production is characterized by monopoly and cartel behavior, state ownership and control, and heavy regulation. Periods of substantial price volatility and environmental challenges associated with production and distribution have made ...