Due to deregulation, energy became one of the most traded commodities in the oil and natural gas industries in the 1980s, followed by the electricity industry in the 1990s. This implied a drastic increase of the degree of price uncertainty in the energy markets and generated the development of the first exchange-traded energy derivatives, i.e. financial contracts whose value is derived from changes in energy prices.
The success and growth of these instruments attracted a broad range of participants (such as energy merchants, refiners, producers, hedge funds or brokers) to the energy markets and stimulated trading in an even wider variety of energy derivatives. Today, many exchanges and OTC markets worldwide offer futures, futures options, swap contracts and exotic options on a broad range of energy products including crude oil, fuel oil, gasoil, heating oil, unleaded gasoline, and natural gas.
Energy derivatives can exhibit very high volatility, which often goes hand in hand with low liquidity. The price swings occurring in the global energy markets make them both attractive and hazardous for participants.