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Transparency in Energy and Commodity markets

Transparency in Energy and Commodity markets



Some of the initiatives through which the G20 has been attempting to address the issue of enhanced transparency in the energy and commodity markets is by strongly supporting the Joint Organizations Data Initiative (JODI) and by initiating studies through specialised agencies on issues of contemporary relevance like oil price volatility and financialization of commodity markets.

JODI-Oil, JODI-Gas and JODI-Coal

The Joint Organizations Data Initiative is a concrete outcome of the producer-consumer energy dialogue. Launched in 2001, this initiative first received the support of the G20 Leaders in the G20 Pittsburg Summit in 2009. In the summit it was agreed to improve the domestic capabilities to collect energy data, improve energy demand and supply forecasting. The G20 leaders in the Cannes Summit committed to work on the JODI-Gas database on the same principles. Further in the Los Cabos Summit, the communiqué asked for well-functioning and transparent energy markets. The Leaders also emphasized to continue to work to improve the timeliness, completeness and reliability of JODI-Oil and also suggested to extend this initiative to coal.

A well-functioning world economy requires efficient energy and commodity markets. A common understanding reflected in various G20 statements is that greater transparency will ensure the stability of the markets. Pursuant to this understanding, inquiries have been made by international organizations into instances of excessive price volatility and the perceived market function of price-reporting agencies. Data collection on the physical oil market (JODI-oil) is well established and continuously improves in performance; its extension to gas is mandated while other possible areas are under discussion.

Continuing progress in the implementation of the transparency commitments made by Leaders in Los Cabos could be an area where the G20 could add significant value. As a next step in this direction the Russian Presidency considers useful to learn from the experience of implementing JODI-oil and based on that discuss real barriers to market transparency. JODI-gas enjoys broad support and its initial version is expected by the early 2013. These will provide a good opportunity for making a substantial progress report on the role of JODI in improving energy statistics and the transparency of the energy market. Ensuring availability and compatibility of relevant data on physical and financial markets has also been raised as a potential lever for improving energy market transparency.

Since the issue of excessive price volatility was included into the G20 agenda, significant progress has been made in understanding deficiencies and information gaps in energy and commodity markets. These investigations have contributed greatly to our knowledge. The IOs and experts responsible for this work have done great service, yet their findings remain mostly academic at the moment. The Russian Presidency believes that it is now a right time to move from investigating the past to a forward-looking approach addressing future with more operational measures.

As a first step in this shift, a discussion involving qualified experts and IOs is needed to assess whether there are meaningful and feasible ways to anticipate potential commodity market volatility that may adversely affect stability of budgets and/or have negative socio-political impact. The object would be workable and commonly agreed-upon means of early warning on foreseeable negative developments in energy and commodity markets. It may be beneficial to formalise discussion at expert level of the developments in international energy and commodity markets whereas their findings could be reported to the financial track of the G20 thus improving its awareness of the situation in the energy markets and facilitating its agenda.

With a forward-looking orientation, furthermore, the G20 will also be better aligned to improve its knowledge of particular markets, and ask for improvement of statistical information with a clearer understanding where it is really needed. This would provide for a good reference framework to identify potential ways to extend JODI where it could bring the value added.

In the November, 2012 G20 Finance Ministers and Central Bank Governors Meeting, the ministers welcomed the progress made in the implementation of the Agricultural Market Information System (AMIS) which will provide more transparency on physical markets for agricultural commodities; the IEF’s recommendations to improve the reliability of the JODI-Oil database ; the report prepared by the IEA, the IEF and the OPEC on increasing transparency in international gas and coal markets ; the progress made on the JODI-Gas database and look forward to working with it in 2013. Further again in February 2013 G20 Finance Ministers meeting the Ministers, committed to look forward to the report by the IEA, IEF and OPEC on practical steps G20 countries could take to increase transparency in international gas and coal markets. Further it was committed to continue working to improve the timeliness, completeness and reliability of JODI-Oil for a progress report this year. Ministers welcomed the progress on the JODI-Gas database and look forward to its launch in 2013.

Oil Price Volatility

In the 2011 G20 Cannes Summit Final Declaration, the G20 Leaders stated, “Recognizing the role of Price Reporting Agencies for the proper functioning of oil markets, we ask IOSCO, in collaboration, with IEF, the IEA and OPEC, to prepare recommendations to improve their functioning and oversight to our Finance Ministers by mid-2012”. In response, IOSCO published its final report on Principles for Oil Price Reporting Agencies (PRAs) in October 2012.'

In the Finance Ministers meeting, November 2012, the ministers welcomed the report by IOSCO on recommendations to improve the functioning and oversight of oil Price Reporting Agencies. In the February 2013 G20 Finance Ministers Meeting, the Ministers agreed to look forward the IOSCO report on progress on the implementation of the principles for the PRAs and the assessment by IOSCO in cooperation with the IEA, IEF and OPEC of the impact of these principles on physical markets.

Commodities

The leaders at the Cannes Summit, 2011, welcomed the G20 study group report on commodities entitled “Report of the G20 Study Group on Commodities under the chairmanship of Mr. Hiroshi Nakaso”. The report of the G20 study group on commodity price volatility was submitted to G20 Finance Deputies in July 2011. The G20 leaders at the Los Cabos Summit recognized the importance to the global economic recovery of maintaining stability in international commodity markets. They emphasized on the importance of well-functioning and transparent physical and financial commodities’ markets and reduced excessive price volatility to achieve food security and strong growth that is both sustainable and inclusive.

During the G20 Finance Ministers and Central Bank Governors meeting, November 2012, they reaffirmed their commitment to enhance transparency and appropriate regulation in financial commodity markets, and thus welcomed IOSCO’s report on the implementation of its Principles for the Regulation and Supervision of Commodities Derivatives Markets.