In-Depth look at energy trading

1. What Are Energy Markets?
2. What Factors Influence Energy Prices?
3. Oil Trading

Most trading activity is concentrated in two major commodity groups: energy and metals. Let's take a closer look at these markets, starting with the assets that fuel the global economy.

What are energy markets?

Energy markets include commodities that power industries, heat homes, and serve various other uses, such as crude oil and natural gas.

Traditionally, energy has been considered a part of the hard commodities segment, but this view is evolving. An increasing number of traders now see energy as a distinct market.

This shift is driven by the fact that the energy sector includes not only fossil fuels—such as oil and gas—but also renewable energy sources, like solar, wind, and biofuels. Trading in ethanol and electricity is gaining importance, though the most developed energy markets remain focused on non-renewable resources, such as oil.

Energy Markets Include:

• Crude oil
• Heating oil
• Natural gas
• Biomass ethanol
• Renewable sources (solar, wind, hydro)

Markets for electricity, oil, natural gas, and renewable energy are highly dynamic and constantly evolving. The prices of energy commodities fluctuate by the minute, creating opportunities for experienced traders who understand this sector.

What factors influence energy prices?

The prices of energy commodities are shaped by various supply and demand factors. These can include OPEC production cuts, pipeline disruptions, as well as changes in industrial output and overall economic conditions.

Below is an overview of key influences:

Supply Factors:

• Depletion of oil reserves due to unsuccessful exploration
• OPEC production cuts
• Political conflicts (e.g., war between Iran and Iraq) disrupting supply chains
• Weather conditions affecting exploration efforts
• Exploration and extraction costs
• Technological advancements, such as the development of shale oil extraction

Demand Factors:

• Economic growth, leading to increased industrial production
• Economic stagnation, causing a decline in industrial activity
• Population growth, driving higher fuel consumption
• Seasonal factors, such as increased fuel use during winter months

These constantly changing factors contribute to price fluctuations in energy markets.

Oil Trading

Oil trading is one of the most widespread forms of energy trading, with millions of futures contracts exchanged daily. Like other energy commodities, traders can speculate on future oil prices using various instruments, such as CFDs, futures, options, or selected oil ETFs.

There are several different oil markets, as various regions produce crude oil of different qualities. The main types of crude oil include:

• West Texas Intermediate (WTI) – American crude oil
• Brent Crude – European crude oil
• Dubai Crude
• OPEC Reference Basket
• Tapis Crude
• Bonny Light

Similar to other energy markets, oil prices are primarily influenced by supply and demand. When supply exceeds demand, prices decline. Conversely, when demand outpaces supply, prices rise.

OPEC

The oil production policy in 14 countries, mainly in Africa and the Middle East, is coordinated by the Organization of the Petroleum Exporting Countries (OPEC). Established in 1960, this organization seeks to achieve economically sustainable and regular oil supplies for consumers. As mentioned earlier, OPEC can influence oil prices by setting production quotas for its members.

Since 2014, global oil supply has been declining annually due to the depletion of deposits and unsuccessful exploration efforts. In addition, there are other factors affecting supply and demand, as outlined in the section “What Drives Energy Prices” above.