Publications: Notes at the Margin

Energy Policy Economic Ignorance; Markets' Ignorance of Forecasts (September 19, 2022)

 

Economic, energy, and environmental policymakers today fail to understand the economics of energy markets. For that matter, the “three Es” have never understood the economics of energy markets. Thus, the European Union will shortly end its twenty-year experiment in energy market liberalization but only after German automaker Volkswagen pockets several billion in trading profits by buying natural gas forward. VW will find a way to pocket the cash because gains from hedging are not always taxable. Meanwhile, European energy companies will be asked to pony up more than one hundred billion in extra taxes—probably three hundred billion when all is said and done.

 

The current turmoil in Europe continues to disrupt all markets by limiting capital availability to energy firms and traders. Oil prices, as a consequence, persist in disobeying the orders of oil ministers and the forecasts of analysts. A Reuters commentary noted their decline, attributing it to “fears of a prolonged slump in global energy demand” that “no major forecaster predicts.”[1]Missing from the article were the words “banks,” “credit,” and “volatility.” Apparently, the authors—and market analysts—believe buyers can bid up prices and add to inventories without cash.

 

 

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