Energies

Trading energy commodities is very popular around the world and very promising for traders, who prefer intraday trading and want to diversify their investment portfolio. The most typical feature of energy prices is high volatility, which is the result of numerous political and environmental factors that influence it. Many supply and demand factors also affect energy prices, the strongest of which is global economic growth. In times of economic prosperity the demand for energies increases, while a decrease in consumption occurs when economy stagnates.

Beside economic changes, extreme weather conditions can also have a great impact on energies, leading to supply disruptions of crude oil, natural gas, or heating oil. As a result, such conditions can decrease or increase demand for many consumer services related to these energies. Moreover, global energy prices are highly affected by the political instability in some of the world’s biggest natural gas fields.

Oil trading is a globalized, 24-hour market, with its prices in constant motion. This makes it an ideal instrument for day traders who look for fast movements and choose CFDs as the easiest way to trade on oil prices. Energy assets are traded as CFD (Contract for difference) instruments on the platform. This means that traders can deal on the basis of cash exchange for contracts based on the price movements of these assets without actually owning the physical assets themselves. Margin requirements for energy assets trading online are much higher than is required for currency trading. Therefore, traders who are interested in trading energy assets must be familiar with the contract requirements for each asset.

What is petroleum

Petroleum, also known as crude oil, is a fossil fuel. It was formed from the remains of plants, algae, and bacteria. During millions of years of extreme heat and density, they were transformed into carbon rich resources which are the raw material for fuel and other products.

Petroleum is a mixture of hydrocarbons and paraffin in some cases and in other aromatics and cycloparaffins. Usually found in deep rock strata but sometimes near the earth’s surface. When it is mined, and refined, hundreds of petrochemicals are made into many different products.

Crude petroleum is made of approximately 80% carbon compounds, and a combination of hydrogen, nitrogen, oxygen, and sulfur.

Oil Demands

Transportation Sector: Most of the oil consumed today and, in the future, will come from the road transportation sector (based on the World Oil Outlook WOO). In 2015 it accounted for 45% of the overall demand and is expected remain at this mark until 2040.

The second largest contributor to oil demand is the construction and mining industry consisting of iron, steel, glass and cement production. Following them comes the sectorial industry, this is expected to slow down as the world moves closer to a service-oriented economy.

The fourth sector demanding the most oil is the residential/commercial/agriculture industry which accounts for about 11%. This industry demand is expected to remain the same over the next 20 years.

Other industries such as aviation is expected to grow, where demands in the electricity generation sector should remain as is starting around the 5.3 mb/d, however in the long run expected to decline.

Despite a slower economic growth, China is forecasted to increase their demand for oil in the coming years. And India is becoming the world’s fastest growing consumer of oil with rising incomes and a rising numbers of cars. In Brazil, more oil will be required since they are the leader of the chemical market and production of polyethylene, the main raw material for plastic production.

Fundamental triggers for energy assets trading

Energy assets are vulnerable to the following economic fundamentals:

Weather

This is especially important in the US Gulf Coast, where hurricane activity may halt production, leading to drops in oil inventories. Also of importance is very harsh winters which lead to increased demand of heating oil.

Political and economic events

Political unrest (such as Libya in 2011), sanctions (like Iraq in 1991 and Iran in 2013 / 2014) and production quota changes by the OPEC cartel are the greatest determinants of prices of energy assets.

Global demand

Therefore, you must have a good knowledge about these events and how they affect, for example, crude oil. Be aware of this events to make better investments in energy assets with AG Markets.