from Energy, Security, and Climate and Energy Security and Climate Change Program

New Website on the Speculation Debate

February 13, 2013

Blog Post
Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

One of the most misunderstood topics in energy markets is the role speculation plays in them, and specifically how buying and selling by financial market participants affects market behavior. Public attention to these questions tends to increase when commodity prices rise, which means that it’s been a relatively hot issue over much of the last decade.  A lot of what gets said about it, though, simply isn’t well informed.

Hilary Till, who has done excellent research on the financial aspects of commodity markets, pointed out a new website to me that provides some worthwhile links to not-for-profit research on the speculation debate. The site was set up by the International Swaps and Derivatives Association, Inc. (ISDA), so it’s an industry perspective on the research that’s been done. If you’re looking for the full spectrum of voices, this isn’t it. But if you’re looking for a starting point for research, this site links to several leading studies from academia and government, including several economists whose research I’ve found particularly insightful, like the International Monetary Fund team, Craig Pirrong, Scott Irwin, Dwight Sanders, Lutz Kilian, and Phil Verleger. The site also provides some basic information that often gets lost in the debate, such as the constructive role that derivatives markets play in the production and consumption of physical commodities.

The site is organized around four questions:

1. What drives commodity price changes?

2. What is financialization and how is it affecting commodities markets?

3. Is speculation causing food prices to rise?

4.  Will position limits help reduce price volatility?

You can check out the site here.