LONDON, Oct 11 (Reuters) – Energy companies, hedge funds and commodity traders are stepping up their use of financial products that let them bet on the weather, as they seek to protect themselves against – or profit from – the increasingly extreme global climate.

On the Chicago Mercantile Exchange, average open interest in weather futures and options was four times higher in the January to September period than a year earlier, and 12 times higher versus 2019.

Open interest measures the number of outstanding futures and options contracts that have not been settled. Trading volume has also quadrupled in a year.

Weather derivatives were born in the late 1990s. Driven in part by U.S. energy company Enron, the market expanded and attracted speculators who were hunting for assets divorced from wider financial markets, before shrinking after the 2007-2008 financial crisis.

This time, market players are hoping its growth will be more sustainable as climate change and concerns over energy supplies push businesses like big utilities to protect themselves using the contracts.

“There is a general belief that extreme (weather) events are both going to become more common and more extreme,” said Peter Keavey, global head of energy and environmental products at CME Group. “That has been the number one driver of this.”

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