Energy Futures (Part I)
Nov 27, 2009 Real Estate
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Again crude oil prices have started rising. The recent price of crude oil was quoted as $ 80 per barrel. It is being predicted that the price will soon reach the $ 100 per barrel mark. One thing should be clear to you. Energy markets will be a major focal point in the global financial makers and the global economy for many years to come. The key to understanding energy trading is to understand oil, natural gas, gasoline and heating oil futures.
Trading in energy futures is centralized at the New York Mercantile Exchange (NYMEX), the world’s largest physical commodity futures exchange. NYMEX trades futures and options contracts for crude oil, natural gas, heating oil, gasoline, coal, electricity and propane. NYMEX is also home to trading in metals. Trading in NYMEX is conducted in two divisions: 1) The NYMEX Division and 2) The COMEX Division. For smaller traders NYMEX offers e-mini contracts for oil and natural gas that also trades on the GLOBEX network of the Chicago Mercantile Exchange (CME).
Next to interest rates, energy and especially oil is the center of the universe not only for the industry but also for the financial markets. The relationship between energy and interest rates is very important to understand. This relationship ties together the two most important aspects of the global economy: energy (the fuel for growth) and the interest rates (the catalyst that powers borrowed money to do things).
The relationship between energy and interest rates is very important to understand. This relationship ties together the two most important aspects of the global economy: energy (the fuel for growth) and the interest rates (the catalyst that powers borrowed money to do things). Next to interest rates, energy and especially oil is the center of the universe not only for the industry but also for the financial markets.
As a trader, you should know this fact that oil price rise often tends to slow down the economy and lower retail sales as well as consumer confidence with lower traffic on the highways. Sometimes the rise in oil prices leads to the increase in interest rates through the bond market and the actions of central banks and the other times the opposite happens. Rise in oil prices if often inflationary.
Now you need to understand the Peak Oil Concept. Peak oil is the concept that the world oil production has peaked and the production of oil will never be as high again. Oil prices and the interest rates generally move in the same direction when viewed over long periods of time.
In any case, most of the experts now agree that in the next 10-20 years, the oil production will peak and after that it will start declining. Now you should keep these facts in the background of your mind as a trader.
Now this means that in the short run, following oil prices can be a highly profitable strategy. Your aim as a trader is to make quick profits by trading the price fluctuations in the oil market. So the important facts that you need to keep in the back of your mind while trading oil is: 1) Demand fluctuates but supply of oil is finite. 2) The world runs on oil and any threat to the supply of oil often leads to rising prices. As an oil trader your primary goal is to consider the effects of events on the supply of oil and correlate this effect with your charts.
Mr. Ahmad Hassam has done Masters from Harvard University. Trade Dow Futures . Learn Commodity Trading ! Get a totally unique version of this article from our article submission service
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