Energy belongs to that category of commodities, which has the most significant impact on our daily lives. Energy prices affect the cost of almost everything that we consume on a daily basis, including the clothes we wear, the fuel we put in our cars, and the electronic gadgets. They, in turn, determine the increase or decrease in the prices of homes, hospitals, schools, etc. We cannot imagine ourselves in a world without energy.
The unit that is used to define the quantities of energy is the British thermal unit (Btu), which measures the heat content of fuels. According to the Energy Information Agency (EIA), every year, worldwide energy consumption exceeds 575 quadrillions Btu and is expected to reach 736 quadrillions by 2040.
Major energy commodities
Highly traded energy commodities are from non-renewable energy sources, except for ethanol and electricity generation. These commodities are very liquid when it comes to trading. Traders can also invest in these commodities through ETFs and CFDs.
Crude oil is one of the most actively traded commodities in the world. The price of crude oil affects many other commodities, including natural gas and gasoline. Crude oil comes in different grades. Light Crude oil is traded on the New York Mercantile Exchange (NYMEX). This type of crude oil is popular because it is the easiest to distill into other products. The next grade of oil is Brent Crude oil, which is primarily traded in London and is seeing the increasing interest. The last grade of oil is the West Texas Intermediate (WTI) oil from U.S. wells. The product is light and sweet and is ideal for making gasoline. The reports for crude oil are found in the U.S. Energy Information Administration (EIA) reports. This report is released every Wednesday around 10:30 PM ET. Traders take investment decisions based on the data of this report.
Coal is a fossil fuel that is formed from dead plant matter trapped between rock deposits. Coal is used as an energy source for hundreds of years. This mineral generates 41% of the global supply of electricity and plays a crucial role in other industries. The top 5 coal-producing countries are China, the USA, India, Australia, and New Zealand.
Natural gas is formed either by methane-releasing microorganisms in swamps or by pressurizing organic material deep underground. Three major reserves for natural gas are Canada, USA, and Russia. This commodity has many applications, from electricity generation to fertilizers. Natural gas futures and ETFs are available for traders and investors. The price of natural gas depends on the demand and supply of the commodity itself.
Energy commodities can also be traded through Forex Brokers these days. Many of the credible and regulated and unregulated Foreign exchange brokers allow their customers to trade all the major energy commodities like Crude Oil, Coal, and Natural Gas.
Factors affecting the prices of energy commodities
- Market growth
- Energy efficiency
- Population growth
- Electricity penetration
- Industrialization in developing economies
Investors who want to invest in the energy sector should track the indices of that sector. These indices measure the production and sale of energy. One can also monitor the performance of energy company shares prices. Energy company’s revenue depends on the price of the commodity they are selling. Other factors include production costs, competition, and interest rates. That’s about Energy commodity. Cheers!