A Brief Guide To Investing In The Energy Sector

The energy sector offers many opportunities for investors, including a variety of ways to invest. The sector is diverse and can seem complicated to the new investor, but a little background research can help clarify the major forces that drive price changes. In addition, it’s helpful to stay up to date on industry news and learn where experts think oil and gas prices are headed. The following are a few things that everyone needs to know about investing in the energy sector.

Demand For Energy

The demand for oil affects oil prices, and up to now, demand has grown continually thanks to increasing industrialization and wealth in many countries, particularly India and China. At the beginning of 2017, the global demand for oil was at nearly 98 million barrels per day with an increase of 1 to 1.3 million barrels a day forecast for the year. However, demand may slow down as energy efficiency improves and concerns about pollution become more important.

Supply Of Energy

Supply depends on several factors. First of all, it’s determined by how many wells are in operation and how much oil and gas they can extract from the ground. New fracking and drilling techniques have allowed the U.S. to significantly increase its supply of both gas and oil, and some new oil reserves have been discovered. However, OPEC and other oil-producing nations may slow production intentionally in order to decrease supply and drive prices up. Another factor that affects supply is the amount of oil a country is able to hold in storage.

Futures Contracts

Another factor that can affect the price of oil is futures trading. When speculators trade in futures, they agree to purchase a certain amount of oil at a certain price in the future, betting that the current price will be higher than what they have agreed to pay. In an interesting shift of cause and effect, some countries like Saudi Arabia and Iran actually use futures contracts to determine current prices.

Investors don’t have to trade in futures in order to profit from the energy sector. They can buy stocks in major corporations or invest in energy sector index funds and exchange-traded funds. To get up-to-date information about the oil and gas industry, read more online.