— Guillermo Ruiz Zapatero (@ruiz_zapatero) March 16, 2022
The FT writes that in a letter it had seen, the European Federation of Energy Traders, a trade body that counts BP, Shell and commodity traders Vitol and the margin-call stricken Trafigura as members, said the industry needed “time-limited emergency liquidity support to ensure that wholesale gas and power markets continued to function”.
“Since the end of February 2022, an already challenging situation has worsened and more [European] energy participants are in [a] position where their ability to source additional liquidity is severely reduced or, in some cases, exhausted,” EFET said in its letter, dated March 8 and sent to market participants and regulators.
It was "not infeasible to foresee . . . generally sound and healthy energy companies . . . unable to access cash", the letter warned, clearly ignoring that "generally sound" companies would have anticipated such a fat tailed scenario. The fact that they didn't suggests that they were either not "generally sound", or "healthy" and certainly did not plan accordingly. And yet somehow their stupidity and/or greed makes them eligible for Fed bailouts?
According to the letter, the EFET wants state entities such as the European Investment Bank or central banks, such as the European Central Bank or the Bank of England, to provide support through lenders, to soften the impact of margin calls.
“The overriding objective is to keep an orderly market for futures and other derivative energy contracts open,” said Peter Styles, executive vice-chair of the EFET board, in an interview. “Gas producers, European gas importers and power suppliers must retain the opportunity to hedge their positions.”
Well, why not: central banks bailed out everyone during the covid crash, may as well continue the practice of bailing out everyone else in the process. Oh, and for anyone doubting if the Fed will step in and save stock markets - what China just did a few hours ago - this should answer your question.
That said, speaking at a conference on Wednesday, Rostin Behnam, chair of the Commodity Futures Trading Commission, the top US derivatives regulator, said appropriate margins must “unfailingly” be maintained.
“We must hold fast to our regulatory structures and resist the urge to make ad hoc decisions to avoid the natural outcomes of market forces,” he said.
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