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What are Energy Commodities?

2016-09-23T10:05:20+00:00

The term 'Energy Commodities' is included in the Economics edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

The term energy commodities refers to a variety of coal, oil, and gasoline derived products. These include such energy sources as coal, Brent Sea Oil, gasoline, heating oil, and natural gas. These energy resources prove to be essential in daily life. This makes consumers most aware of such commodities. Besides being among the most heavily used, they are also typically among those which are most widely traded.

These energy commodities find use in so many industrial applications that they maintain a strong investment appeal. Their prices have the ability to rise substantially over shorter time frames when demand picks up or supply drops. Energy is also a major component in inflation indices around the world, which makes investments in energy an effective hedge against rising prices. Higher oil and gasoline costs translate to higher prices in general throughout the U.S. and world economies.

Investors who are interested in investing in these different types of energy commodities have a variety of choices of investment vehicle and commodities. There are Exchange Traded Funds and Notes (ETFs and ETNs), futures and options contracts, and energy sector company stocks from which to choose.

Brent Sea Oil turns out to be the major oil benchmark in the world. It is the one to which around two-third of worldwide oil trade is tied and is especially relied upon in the EMEA region (Europe, Middle East, and Africa). This indicator represents a sweet form of crude oil, though it is not as sweet as the American benchmark WTI (West Texas Intermediate) crude oil. Brent oil is used to produce gasoline and mid purity distillates like diesel and kerosene. Crude oil finds applications in a wide range or consumer products that underpin modern day life, including plastics. Crude must first be refined in order to be turned into most useful products like gasoline or heating oil.

Coal is responsible for providing the energy for half of all the electricity generated on earth. It is usually obtained through open pit mining or via underground shaft mining. Major coal deposits exist in the Midwestern and Eastern United States as well as regions of Russia and China. Coal is principally utilized in generating electricity. Almost 40% of all energy production in the world comes from coal. In the last few years, coal has become less important in developed countries and more critical in developing nations like China who need cheap fuel. It is also useful for steel production because of the incredibly hot temperatures it produces which are critical for creating the purest steel.

Gasoline proves to be among the most critical of the energy commodities, especially for the American transportation industry. The American market makes up over 40% of all demand for gasoline. Emerging markets are utilizing an increasingly larger share of this energy resource.

Heating Oil finds its main uses in boilers and furnaces as the fuel source for warming businesses and homes. It is most heavily employed in places in the Northeastern United States and the United Kingdom and Ireland. Natural gas can be hard to access in some of these markets or too expensive to use in places where it is very cold.

Natural Gas is among the most important fuels for generating power. It is particularly popular in the cooling and heating systems throughout the United States. Natural gas powers either steam or gas turbines to create electricity. It is increasingly preferred over oil and coal as it is a much cleaner energy source that produces fewer greenhouse gas emissions. It has been made more practical for transporting thanks to LNG Liquid Natural Gas terminals that work with a CNG Compressed Natural Gas form.

The term 'Energy Commodities' is included in the Economics edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.