Report: Volcker rule poses problems for energy industry

Concerns continue to grow that the recent reforms to the U.S. financial system could have unintended consequences for energy companies. Reuters cites a new report from research group IHS Inc. suggesting that the so-called Volcker rule could substantially increase energy costs in the country.

The Volcker rule is a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act that limiting banks' abilities to invest with their own funds, what is known as proprietary trading.

The IHS report suggests that restricting proprietary trading could impact energy companies' abilities to hedge against changes in the crude oil price and other important energy commodities. These banks play a crucial role in risk management for many energy companies, since the scale of the industry requires massive financing to keep running smoothly.

"You are going to eliminate the flywheel that makes the system work," IHS CERA chairman Daniel Yergin, one of the report's authors, told Reuters.

All told, the report suggests the Volcker rule could result in the loss of 200,000 potential jobs in the energy industry over the next four years.

However, Bloomberg reports there is growing support in Congress for a delay on the Volcker rule, as more legislators learn of the potential consequences.

Information on energy risk management can be found at PennEnergy's Research area.

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