CFDs on energy are a popular choice for short-term trading, especially when there is a surge in energy consumption, as during periods of active growth, demand increases. Prices are determined by global supply and demand for the physical product.
Often referred to as “black gold”, Oil is usually denominated in U.S. Dollars (hence the term ‘Petrodollar’), so a weak dollar will commonly cause Oil prices to rise, as the price of the product is directly influenced by the value of the currency.
Oil-producing nations have a dramatic effect on the supply, and therefore the price, as they may withdraw or boost the physical quantity of barrels available in the market.
For example, since the mid-90s, the US imposed sanctions on Iran have prevented Iranian oil from entering the marketplace, widening the gap between supply and demand which results in higher prices. Another noteworthy event occurred in 2014 when a much lower demand from the EU and China caused a sharp decrease due to the excess supply. For many years, the US government has been building up its oil reserves and should these be released to the market, or used domestically, energy prices may drop sharply as a result.
In the case of NatGas, an alternative energy commodity to oil, historical analysis shows a general correlation between the two, considering that natural gas is often released during the oil drilling process, and they are commonly produced by the same companies or nations.
In conclusion, a multitude of economic factors can affect the price of energy, including inflation rates, political or military tensions in producing nations, natural disasters, production costs and of course, OPEC decisions.
