The process through which world oil and gas prices are determined has evolved over the last few decades towards greater decentralisation and a closer interaction between physical and financial markets. An increasing number of actors participate in the daily matching of supply and demand bids. To the extent that this process is efficient, it helps in the discovery of the true value of the last unit of oil or gas traded, sending important signals for the allocation of resources linked to production and consumption alike. But if the process is inefficient, whereby actual observed prices fail to reflect fully the interplay of demand and supply forces, it can lead to a misallocation of resources with related costs to society and global energy security.
Considering the importance of price formation to the healthy functioning and development of world oil and gas markets, the 22 March 2013 IEF Thought-Leaders Roundtable entitled “The process of price formation in oil and gas markets: the role of organised exchanges and price reporting agencies (PRAs)” sought to understand better the conditions under which the efficiency and transparency of price discovery can be improved, exploring key drivers and highlighting potential roadblocks. Roundtable participants included representatives from national governments, commodity exchanges, trading firms, consultants, and of course price reporting agencies themselves.