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What role will energy trading and marketing play in the future, and which companies will survive to be a part of that future? At its core, energy trading is still a viable business that performs a valuable service to the industry, Carol Coale, an energy stock analyst with Prudential Securities, told Houston Producers Forum members at a recent gathering. However, their current focus-endorsed by the debt-rating agencies-deal mainly in short-term trades and is unsustainable. The investment community favors shorter-term deals because their mark-to-market profits convert to cash within a year or two. But they also generate much lower returns than longer-dated transactions, she noted. Rebecca Followill, an energy analyst with Howard Weil, noted that only three companies now are entering or expanding their trading and marketing function: Bank of America, Credit Lyonnais and UBS Warburg. However, the lattermost laid off about 130 traders recently from its Houston trading and marketing group. Energy merchant companies have taken heat for allegedly manipulating the California energy market and engaging in deceptive practices such as round-trip trades. Were they breaking the law, or simply taking advantage of a poorly structured market? Whatever the answer to that question, the fact remains that investors don't want to touch energy trading companies until their faith in the business is restored, Coale said.
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