Fuel value cap dangers curbing market liquidity, EU regulators warn – EURACTIV.com


The European Union’s fuel value cap, which launches subsequent month, might impression monetary stability and probably curb liquidity in Europe’s exchange-traded fuel markets, the bloc’s monetary and vitality market regulators mentioned on Monday (23 January).

EU nations agreed in December to a fuel value cap that, from 15 February, will kick in if benchmark Title Switch Facility (TTF) fuel hub costs spike – a long-debated coverage designed to keep away from the record-high costs Europe confronted final 12 months after Russia slashed fuel deliveries.

In a report revealed on Monday, the European Securities and Markets Authority (ESMA) mentioned that if fuel costs edge in the direction of the extent that will set off the cap, market individuals are more likely to change their behaviour to keep away from triggering it, or to organize for it.

“Whereas this behaviour would seem rational on a person foundation, it might set off important and abrupt modifications of the broader market atmosphere, which might impression the orderly functioning of markets, and in the end monetary stability,” ESMA mentioned.

ESMA mentioned it appeared seemingly that market individuals would shift to buying and selling fuel on contracts or venues the place the cap doesn’t apply – both by transferring to non-EU buying and selling platforms or buying and selling “over-the-counter”. That would deal a blow to liquidity on regulated markets for TTF contracts, ESMA mentioned.

A separate report by the EU Company for the Cooperation of Vitality Regulators (ACER) mentioned the approaching value cap had to this point not induced any fallout in vitality markets, however that it was monitoring a variety of dangers.

These embrace that market individuals would transfer to “over-the-counter” buying and selling or non-EU hubs, or increase their bids – resulting in decrease market liquidity, ACER mentioned.

EU fuel costs have tumbled in current weeks amid unusually heat climate and full EU fuel storage, with the front-month TTF contract now beneath €70 per megawatt hour (MWh) – far beneath the record-highs of over €300/MWh it hit final 12 months.

ESMA and ACER will each produce a full report by March on the potential impression of the fuel value cap.

The coverage was authorised by EU nations final 12 months after a drawn-out debate between greater than 15 pro-cap nations together with Poland and Greece, and people resembling Germany and the Netherlands that warned of potential unfavorable penalties.

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