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Oil Industry Structure and Evolving Markets

Joe Roeber

Year: 1994
Volume: Volume 15
Number: Special Issue
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-NoSI-14
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Abstract:
Of all the changes in the oil industry over the past 20 years, the most radical have taken place in the market, and in the formation of prices. These are both a response to and a cause of changes in industry structure. From plannable supplies at relatively stable prices, companies have had to learn to handle short term supplies in condition of extreme volatility. Management of the resulting price risk has become a central role of the companies' supply departments, and the use of paper markets (forward, futures and derivatives) has become an integral part of price formation. It is not impossible that the changes would be reversed, if the conditions that brought them into being-surplus production and de-integrated supply structures-were reversed in conditions of scarcity, but it is highly unlikely. Far more likely, is that risk management and the use of paper markets will increase in importance.



Strategic Forward Contracting in the Wholesale Electricity Market

Pär Holmberg

Year: 2011
Volume: Volume 32
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No1-7
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Abstract:
This paper analyses a wholesale electricity market with supply function competition. Trade in the forward and spot markets is represented by a two-stage game, and its subgame perfect Nash equilibrium (SPNE) is characterized. It is verified that increased forward sales of a producer constitute a credible commitment to aggressive spot market bidding. The paper identifies market situations when this pro-competitive commitment is unilaterally profitable for the producer. It is also proven that a producer has incentives to sell in the forward market in order to reduce competitors' forward sales, which softens their spot market offers.



Ontario's Auction Market for Financial Transmission Rights: An Analysis of its Efficiency

Derek E. H. Olmstead

Year: 2018
Volume: Volume 39
Number: Number 1
DOI: 10.5547/01956574.39.1.dolm
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Abstract:
Financial transmission rights (FTR) are financial products that entitle their holder to receive a payment based on the degree of congestion in a transmission system. In many liberalized electricity markets, FTR are sold at auction by the local electricity system operator. This paper addresses several questions about the performance of FTR auctions in Ontario's restructured electricity market, including whether auction market clearing prices approximate realized payouts and whether there is any evidence that the competitiveness of auctions, as measured by the number of bidders, affects the forward market unbiasedness or informational efficiency of the auctions. The paper finds that the auction process is inefficient in the sense that market clearing prices are substantially and systematically lower than realized payouts, resulting in substantial transfers away from consumers. However, there is some evidence that the auction market is more efficient when there are three or more bidders.





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