Gerardo Ferrara, Gerardo Martinez, Pelagia Neocleous, Pierre Ortlieb and Manesh Powar

The Russian invasion of Ukraine in February 2022 and subsequent sanctions led to unprecedented increases in key commodity prices. While prices briefly abated in late spring and early summer, these surged again over late July and August, with EU and UK gas prices reaching new peaks on 26 August. These moves created a sudden and significant demand for liquidity from market participants with derivatives positions. This post examines how non-financial firms (henceforth ‘commodity traders’) reacted to this liquidity pressure, and how their reactions impacted the functioning of commodity derivatives markets. Commodity derivative markets are important for the real economy and the recent events underscored the need to better understand the interdependencies between margin and counterparty risk management practices.