Barclays' exit from energy trading stirs concerns over liquidity

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By Catherine Ngai and Olivia Oran

NEW YORK (Reuters) – British bank Barclays Plc has joined the list of top banks to exit energy trading, an exodus that analysts say raises concern among oil producers that falling liquidity means they cannot use derivatives for their basic function: to hedge risk by locking in future prices.

Wall Street firms have scaled back in commodity markets since the 2008 financial crisis from owning physical assets or taking positions in the market in the face of regulatory scrutiny. The banks were big players in the market for derivatives years into the future.

The departure of Barclays exacerbates the scarcity of counterparties for trade when producers are trying to hedge their production for 2018 and beyond, potentially raising the cost to lock in that output.

That increase could force cash-strapped producers to forgo protection altogether, putting them at…

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