Energy commodities can be traded. You can trade gasoline, natural gas and even heating oil commodities. Energy is a broad term which can mean any commodity that is used as power. You’ll be able to trade in the same oil that powers your home’s heating, gasoline for automobiles and any other form of energy.
Supply, Demand and Seasonal Factors
Supply and demand are the key drivers behind energy commodities.
“Supply and demand is crucial for determining the oil price – particularly as the yield from certain major oil fields declines,” states Royal Capital.
Distillate energy, or heating oil and gasoline, are reliant on each other’s pricing; the more that is produced of gasoline, the less is available for heating oil and vice versa. A decline in one demand often leads to an increased demand in another.
Price volatility follows.
Increases in supply leads to declining prices. An example of this was seen earlier in 2017. Oil supplies increased due to more production in the United States. Other forms of energy, such as solar energy, are also increasing.
This led to oil prices plummeting.
OPEC decided to cut down on oil production in an attempt to help stabilize falling oil prices. The production cut led to oil prices rising once again.
Seasonal factors also play a role in energy prices. Winter, for example, causes a major spike in heating oil prices. There is also an inverse. Oil and gasoline prices increase during the summer as heating oil prices decline. An increase in travel during the summer is the reason for gasoline prices.
Investopedia has a great article that goes over the oil and natural gas price correlation. The publication’s research concludes that it’s difficult to make definite conclusions on price correlation between the two.
Tips to Remember When Trading Energy
Commodity trading is exciting, and it’s easy to get overwhelmed and make big trades. Overtrading is a major issue, so what you want to do is limit the amount you trade to 2% on any given trade.
This allows you to, effectively, make 50 bad trades without suffering too many substantial losses.
In essence, if you have $10,000 in your account, you’ll be making $200 trades each time. While your winnings will be smaller, you won’t have to worry about huge losses – which is a major bonus.
Short-term trend trading is recommended. A lot of traders have different views on how to trade with trends, but the consensus is that you want to trade with the trend when trading futures. That is, trade with the trend, or the strength in the energy market.
You will end up with losing trades, but in general, trading with the trend leads to success. Be cautious of margin calls, too. If you answer a margin call, chances are that you’ll end up overtrading, which is never a good thing.
Managing risks also means managing how much cash you have and how much trades you have in your portfolio.
Experts agree that you should keep, at a minimum, 50% of your portfolio in cash. This percentage allows you to maintain a healthy.
Note: we’ve got this information from a third-party, let your commercial consultant help you get the trusted information.