COMMODITIES

OIL AND GAS

As energy plays such a vital role in our everyday lives, the price of energy can affect the cost of gas, groceries, clothes, electronics, and the costs of heating and cooling homes. Energy commodities refer to products derived from coal, oil, and gasoline, which are essential to our daily activities. Along with the most heavily relied upon and used commodities in the world, oil and gas investment is generally the most traded as well.

With energy production based on geographical locations, political conflicts, and natural disasters, the price of energy commodities can fluctuate greatly on a daily basis. For oil and gas investment, the three most traded energy commodities are:

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Unlealed Gas

Also known as an RBOB contract when it is traded, unleaded gas is used as fuel for various products including cars and household items. With unleaded gas a byproduct of refined crude oil, the price of unleaded gas directly correlates with the price of a barrel of oil.

Crude Oil

As one of the most important commodities in the world, crude oil is traded as barrels of oil which are bought and sold every day and then refined into useable petroleum products like gasoline and diesel. The price of crude oil can vary depending on supply and demand, global economic conditions, and worldwide production.

Heating Oil

Refined from crude oil as a fuel source to heat homes and businesses, heating oil serves as a major benchmark price for purchases of oil around the world. After gas, heating oil is most produced product from crude oil and the costs of heating oil directly impacts daily energy costs.

HOW TO DO IT

When investing and trading energy commodities, participants have multiple trading methods to find opportunities:

While ETFs denote a claim to a commodity that is traded on an exchange, ETNs operate more like bonds in that they are less secure. Returns from ETFs are generally derived from interest and ETNs’ profits are classified as capital gains.

Buying and selling commodity on a future date at a predetermined price is the basis of a futures contract. The buyer has the obligation to purchase the asset when the futures contract expires, while the seller provides the commodity once the contract expires.

By having the right but not the obligation to buy or sell contracts, options contract trading allows investors to buy (call option) or sell (put option) the asset or commodity at a set price, time or date.

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