Aside from food-based commodities, energy commodities are probably the commodities whose trading has the greatest effect on investors and non-investors alike. Fluctuations in the prices of any given energy commodity can have a substantial effect on the prices the consumer pays for heating, electricity and for transport. Since businesses also have to pay for all of these things, big changes in the price of energy commodities can also affect the prices of food, electronics and other consumer goods; it can even affect public services like government, hospitals and schools.
Energy commodities may be split into a number of types: oil, gas, coal, ethanol and electricity.
Oil as a commodity is one of the foundations of the global economy, so its trading on the commodity market is followed not just by commodity traders, but also governments, economists and companies of all types. It can be split into a number of separate commodities, which are based on either the geographical location where the oil was extracted, the physical characteristics of the oil, or a combination of the two.
Brent Crude oil, traded on the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE), is primarily extracted in the North Sea, between the United Kingdom, Scandinavia and the European mainland. West Texas Intermediate (popularly known as WTI) Crude oil, also traded on the NYMEX and ICE exchanges, is primarily refined in the Mid-West and Gulf Coast regions of the United States. The OPEC Reference Basket, commonly known as the OPEC Basket, is a benchmark consisting of a weighted combination of the prices of oil from member countries of the Organisation of Petroleum Exporting Countries. Another US oil variant, Gulf Coast Gasoline, is also traded on the New York Mercantile Exchange. These various varieties of oil are generally traded in contracts of 1000 bbl (barrels).
Another type of oil traded as a commodity is RBOB gasoline. It is in fact a derivative of oil, and is used as fuel for vehicles and some generators.
Heating oil also falls into this category. This is a refined fuel used for heating in heaters, boilers, furnaces and the like. It is traded on various exchanges, the main one being the New York Mercantile Exchange, and as with other types of oil the standard contract size is 1000 bbl.
As was demonstrated in the recent crisis where Russia restricted supplies to Europe as a means of putting pressure on The Ukraine, gas is an extremely important commodity. Natural gas is the primary gas-based commodity that is traded on the commodity market: it is used in electricity generation and both domestic and commercial heating across the world. It is traded on many exchanges, the primary being the Intercontinental Exchange (ICE), the New York Mercantile Exchange, the Multi Commodity Exchange (MCX) in India, the Australian Securities Exchange (ASX) and the European Energy Exchange (EEX) in Leipzig, Germany. Contracts are measured in British Thermal Units (mmBTU), with the standard contract size being 10000 mmBTU.
Propane is another gas commodity. It is also used for heating and power generation. Like many energy commodities it is primarily traded on the New York Mercantile Exchange, and changes hands in contracts of 1000 bbl.
Despite recent predictions of the long-term decline coal as a primary source of power, increased industrialisation in the devloping world and likely shortages of oil mean it is likely to become even more important in the short term. As a result of this, coal is traded profitably on a number of commodity exchanges worldwide, including the Intercontinental Exchange (ICE).
Due to the growing demand for biofuels, ethanol’s popularity as a traded commodity is increasing, as it can be used to power vehicles etc. Traded in US gallons (the usual contract size being 29000), its main centres of trade are the Chicago Mercantile Exchange (CME) and the Brazilian exchange BM&F Bovespa (BOVESPA).
With power becoming ever more in demand around the world, a number of commodity exchanges – such as the European Energy Exchange (EEX) – have started trading electricity as a commodity. Not only does this enable traders to accumulate wealth through trading; it enables the more efficient transfer of electricity between major economies.
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