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June 2, 2017

What Investors Need to Know About Gas, Oil and Global Energy Demand

Solar energy might be on the rise but crude oil and gas resources are still the major players by some margin, but despite the longevity of the market, it does mean there are challenges and opportunities for investors with prices fluctuating on a regular basis.
Here is an overview of what causes oil and gas prices to rise and fall and how investors might be able to ride the waves. Including a look at some of the key factors that can influence prices in a positive or negative way, plus some indicators that might suggest it could be a good time to invest in some energy stocks.

Many factors influence oil prices

There are numerous factors that can have an adverse effect on crude oil prices and certain scenarios that can cause a spike in their value, the trick for any investor is trying to anticipate these movements in order to generate a profit.

If you are looking for regular insights relating to oil and energy markets in general, more can be found at Oil and EnergyInvestor. In terms of learning what sort of news to look for that can change prices of crude oil and individual energy stocks, here are some pointers.

You can’t talk about global oil prices without including OPEC in that conversation as they are definitely an influential factor in determining what can happen to the price per barrel of crude oil.

Production decisions, inventory levels, and strategies relating to spare production capacity are all factors that can have a noticeable impact on prices and investor sentiment. Crude oil prices are set globally as a result of the daily interactions of a large number of buyers and sellers, all of who will have an opinion and are prepared to back their thinking to try and create a profit.

It is not just the frenetic bartering that can influence prices and stock values. Geopolitical risks are a key threat to the stability of prices, especially if a major oil-producing region is perceived to be at risk.

You need to have your eye on a number of different balls at the same time if you are going to develop a successful investment strategy, including the ability to anticipate how markets are likely to interpret certain economic data and news events.

Crude oil a major influence when it comes to gasoline and diesel prices

It is very often the case that what happens to crude oil prices is likely to be mirrored when it comes to gasoline and diesel prices as well.

We witnessed very weak economic conditions back in 2008 when the global financial crisis was taking no prisoners and this helped to create severe downward pressure on prices. Although there has subsequently been a sustained worldwide economic recovery since those tumultuous events and demand for crude oil is on the rise again, political unrest in the Middle East and North Africa have served to threaten supply lines, causing prices to rush higher for a while.

The subsequent downturn in prices that we have witnessed has been brought about by a growth in oil inventory levels outpacing global demand.

Supply and demand

Energy markets respond to supply and demand factors in much the same way as you see in other areas of industry and commerce, and this is where OPEC have the potential to influence prices.

OPEC members could either boost or cut back production levels based on what is perceived to be the best way of protecting prices. They also look at trying to protect their market share in this way, such as formulating a strategy to combat the impact of the shale boom in the U.S.

Currency values matter

As we are talking a global oil market, currency fluctuations around the world can compound the fall in crude oil prices in certain regions.

If the U.S dollar strengthens against other major currencies of the world such as the Yen and the Euro, for example, this creates a greater fall in crude prices of American consumers. A stronger currency can often mean that a fall in the price of oil can be felt more sharply.

This is always worth remembering when you are formulating an investment strategy.

The shale surge threat

Shale production is surging and the general consensus is that there is basically an oversupply of oil right now, with some analysts suggesting there could be almost 50% more oil than anticipated.

If this worldwide supply glut is showing no signs of shrinking at the present time, this might prove to be a key piece of data that you use when deciding how to play the markets.

Thomas Kent is an investment and finance fan who enjoys helping newbies by writing about his experiences on the web. His posts can be found mainly on personal finance and investing blogs.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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