What are oil and gas commodities?
Oil and gas commodities are natural resources extracted from the earth that are refined into various products used for energy production. Oil and gas commodities are currently the primary sources of energy used globally for electricity, transportation, petrochemical production, cooking, and various industrial processes.
What are some examples of oil and gas commodities?
Crude oil, natural gas, gasoline, diesel, LNG, LPG, bitumen, and petroleum coke are a few examples of oil and gas commodities. Crude oil is considered to be one of the most important commodities traded globally since it is the primary energy source for various vital industries.
What factors influence the prices of oil and gas?
The oil and gas commodities market is sensitive to a wide range of factors ranging from economic to geopolitical, which can cause sudden changes in supply and demand. This, in turn, can lead to significant price fluctuations. The factors that influence the prices of oil and gas include:
- Economic conditions
In an economy that is booming, the demand for oil and gas will also increase as there will be an increase in consumer spending, industrial production, transportation, etc. This increased demand will lead to an increase in the price of oil and gas. The opposite is true during an economic slowdown.
- Technological advancements
Improvements in technology can cause industrial and societal reliance on oil and gas products to decrease, at least in certain domains. This can then have an impact on the demand and prices of such products.. An example of this is the ongoing adoption of electric vehicles — as more people shift to EVs, the demand for gasoline will be negatively impacted.
- Geopolitical events
Oil production and supply are controlled primarily by groups such as OPEC. Hence, any conflicts or tensions in regions such as the Middle East or other major oil-producing regions like Russia can disrupt supply and lead to price hikes.
Why oil and gas?
To begin with, oil and gas are essential resources in every part of the world, which makes demand for them typically high. And as developing economies continue to grow rapidly, the demand for oil and gas is likely to continue increasing. Hence, investors in oil and gas commodities might get good returns over time.
Another reason to invest in oil and gas is diversification. Even when stocks are volatile, oil and gas commodities tend to remain fairly stable. They have a low correlation with other asset classes and hence can be a good addition to your portfolio.
A well-oiled portfolio
If you want to make the most of oil and gas commodities without the risk of direct exposure, consider investing in them through Exchange-Traded Funds (ETFs). You can also invest in the stocks of oil and gas companies, as they tend to pay dividends. Get access to the best-performing oil and gas ETFs and stocks through the Appreciate app today!
