Energy Trading Market and Risk Management Fundamentals

Do you want to know more about fundamentals of energy and energy trading basics? Read this article to find out how to Trade Energy Stocks

Energy trading market overview

While you can use technical analysis to trade solely, it does help to have an idea of what’s going on fundamentally when it comes to various financial markets. This is just as true in the energy markets as it is anywhere else. After all, one of the biggest drivers of price is supply and demand, and there are a multitude of reasons why the market will swing back and forth from either oversupplied, or very demand driven.

If there is a disruption in supply, typically this will come across newswires. For example, conflict in the Middle East has an effect on crude oil pricing due to the fact that we could see supply disruptions. One such example would be the wars that recently happened in Iraq. This obviously had an unsettling effect on crude oil markets, as people were concerned whether or not there would be enough crude oil to handle supply while Iraqi oilfields were obviously off-line. There are other things such as politics that can get involved as well, but typically we are looking at data when we speak of fundamentals.

The US Energy Information Administration has a website at www.EIA.gov that lists several different data sets to give you an idea as to where supply and demand will be when it comes to crude oil and natural gas. For example, you can read about reserves and inventories in the United States, which of course is very important considering that the United States is one of the largest consumers of petroleum in the world. Also, you get other such announcements such as Gulf of Mexico Offshore Production. In other words, this gives us an idea as to what the supply situation will be. Obviously, the more supply, the lower the price in the markets typically.

The EIA also offers information on natural gas as well, so you can also learn about drilling activity and fracking in the Midwest. In other words, it gives you an idea of how much natural gas there is being found in the United States. There are also websites and various other countries that produce energy as well, but as a general rule of the EIA is the biggest mover markets.