Perhaps more than any category of commodities, energy has the biggest impact on our daily lives. Energy prices affect the cost of virtually everything we consume including our groceries, the clothes we wear, the electronic devices we use and the gasoline we put in our cars. They determine the costs of heating and cooling our homes, businesses, factories, hospitals and schools. In fact, a world without energy would be a world without the vital things we need to survive.
Where to Invest Commodities
Almost 90% of the energy consumed worldwide derives from five non-renewable sources: Petroleum Products – crude oil and various refined crude oil products including gasoline, heating oil, diesel fuel, jet fuel, lubricating oils and asphalt. Hydrocarbon gas liquids –gas liquids derived from natural gas and crude oil and include alkanes (e.g., propane and butane) and alkenes (e.g., ethylene and propylene).
Natural gas – an energy consisting mainly of methane that is found deep beneath the earth’s surface. Coal – a sedimentary rock that can be burned for fuel. Nuclear energy – An energy source derived from splitting the atoms of uranium and producing a chain reaction of energy. What Are the Main Energy Commodities?
Except for ethanol and some electricity generation, the most developed commodity trading markets are in non-renewable energy resources. In addition to regulated and (mostly) liquid futures markets, traders can invest in these commodities indirectly through products such as shares, exchange-traded funds (ETFs) and contracts for difference (CFDs).
What are the Main Global Energy Trends?
Several long-term trends could create investment opportunities in energy over the next two decades: Emerging Market Growth Energy Efficiency Revolution Population Growth Electricity Penetration Industrialization in Developing Economies Emerging Market Growth One of the most important trends in energy markets is the disparity in expected energy demand between developed and developing nations.
Global energy usage is expected to climb by almost 30% over the next two decades. However, growth in developed nations is forecast to remain flat. In other words, emerging market nations will account for the entire increase. This forecast could have important ramifications for commodity markets. Traders should pay close attention to economic growth in emerging market economies for clues about energy demand.
Similarly, traders should pay close attention to new sources of energy supplies in emerging market countries. China and India, in particular, will have to make important decisions about issues such as ethanol production, nuclear energy programs and coal-fired power plants. These decisions could have a significant impact on individual commodity prices.
There are a variety of commodity investments for novice and experienced traders to consider. Although commodity futures contracts provide the most direct way to participate in price movements, other types of investments with varying risk and investment profiles also provide sufficient opportunities for commodities exposure.
Commodities can quickly become risky investment propositions because they can be affected by uncertainties that are difficult, if not impossible, to predict such as unusual weather patterns, epidemics, and disasters both natural and man-made.