How to Invest Successfully in Oil and Gas Futures. P. 2. Quality & Crude

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One of the biggest reasons why these countries are able to influence the price of oil and gas so strongly is the fact that the oil they produce is of very high quality which forms the highest demand. Because of this, the countries producing such high quality oil play an influential part in global pricing and the supply dynamics.

Future investment potential

Another factor has a substantial impact on oil and gas prices, specifically future exploration and investment potential. The money governments around the world are prepared to dedicate, or are in the process of dedicating, to exploration is crucial to determining what direction future prices of these commodities could trend internationally.

New investments around the world and new supply channels could lead to a definite possibility of increased production. Areas where production could increase the most, as well as areas that could be most affected by the installation of supply facilities, could play critical roles in preserving stability in prices of both gas and crude oil.

Another factor closely related to future investments is how supply could influence political parameters. As you were probably already aware just from paying attention to the media, oil is a highly charged political topic strongly influenced by a number of political factors. You may have also noticed that any international conflict has a near instant impact on oil trading, which in turn influences gas prices.

Policy

We have already talked about how closely linked politics and oil prices are, so it is clear that policies and oil prices strongly influence one another.  Policies are often designed to accommodate the supplier nations. If the importing country has the stature of the US, that can also significantly impact prices and policies.

Another influential role is seen in the subsidies programs followed by emerging nations regarding crude oil supplies in an attempt to make it available to every level of society. These subsidies can be a tremendous drain on a country’s economy. A result of these subsidy policies is that oil and gas prices are closely linked and frequently stimulate changes, such as policies designed to address changing trends in prices, and fluctuations in prices that occur in response to economic policies.

If you are considering investing in oil and gas, it is vital for you to understand the absolute necessity of staying alert on changing policies and how they can directly affect their prices.

Brent Crude Vs Nymex Crude

If you want to invest in oil and gas, there are some terms you need to know. The West Texas Intermediate (WTI) and the Nymex Light Sweet are important reference points for US oil and gas prices.

In Europe and Africa, Brent Crude is the most commonly referred to benchmark used for trading parameters. Across West Asia, which happens to be where most of the crude oil is produced, the primary benchmark is the OPEC basket.  Besides producers across the Middle East, the OPEC basket also include prices from Venezuela and Mexico, when calculating average crude prices.

In the next article on how to successfully invest in oil and gas futures we will discuss investment channels. Stay tuned.

[Photo used for the featured image: "Rig” by Enrico Strocchi, used under CC BY-SA / Color filters added, image cropped]

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