Investing in Energy Markets Part 1: Oil, Gas and Energy

by Friday, September 26, 2014

The oil and gas market in general has always been one of the most-profitable and most stable markets there is.

Energy markets have always intrigued investors. Ever since the infamous Mark Rich invented spot oil trading, however, this market has exploded in popularity. The ridiculous spikes in oil prices from the late 90’s to the late 00’s made many an energy trader rich and left lots on the outside looking in, thinking that they too, could do the same, given the opportunity.

Do you need oil in your portfolio?

While there are many components that make up the energy sector, it is primarily dominated by oil and gas. For starters, The global oil and gas market was worth more than $2,640 billion in 2010…

Energy markets1-full

that’s 74 billion consumed barrels of oil per year

The Standard and Poor’s Oil & gas Exploration and Production Selection index, which represents the oil and gas exploration and production sub-industry portion of the S&P Total Markets Index has risen approximately 150 percent since 2009.

The industry is still growing, with analysts projecting a 56 percent increase in the global consumption of oil and gas by 2040 and another energy boom on the near horizon. According to recent predictions, oil and gas appreciates at a 7% compound yearly growth rate and will reach nearly $3,700 billion by the end of 2015.

The areas of coverage in the industry are numerous, including locating, oil extracting (drilling), refining, and, finally, delivering, supplying and marketing of oil and gas products all the over the world. Oil continues to be in high demand – it accounts for a third of all demand in the European Union and in Asia, while in the Middle East it is more than half.

Gas remains in high demand as well. According to the 2010 report of European gas industry association Eurogas, the demand for gas in the EU is at 1% annual growth. The numbers show that the demand for gas has increased after its considerable drop, up to 6% in the EU in 2009, because of the worsening global financial crisis.

As with all types of investment, investing in energy comes with certain risk. Prior to 2008, there was minimal risk involved with energy investment. The problem that is associated with investing in energy is that there are unpredictable measures that dictate the value of a given energy source.

Jump in with Both Feet:

Technological development in various aspects of the industry:

  • The different (and frequently changing) regulations of each country
  • Predictability of geopolitical developments and the state of international relations

Read more on How Natural Resource Distribution affects your wealth



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