Unlike stocks, the commodities futures markets are characterized by the ability to use very high leverage, allowing for the possibility of doubling or losing your money in a short period of time. A good rule of thumb when investing, especially in the treacherous energy futures market is to spread risk over several different sectors.
Oil prices follow a seasonal pattern in which they are typically drawn down in the middle of the winter and re-built rapidly in the spring, creating a tendency for world oil prices to be strongest in the fall and weakest in the spring. This seasonality stems from world oil demand being more seasonal than world production. Swings are most pronounced in those Northern Hemisphere heating fuels- heating oil, propane and kerosene. Below is a short description of some of the popular energy futures.
Crude oil futures provide for an easy and convenient way for individual investors to access the commodities market. Light, sweet crude oil is preferred by refiners because of its low sulfur content and relatively high yields of gasoline, diesel fuel, heating oil and jet fuel. These futures contracts are the most actively traded of the commodities. Much of the world’s crude is also priced in dollars, making it sensitive to fluctuations in the USD.
Natural gas accounts for almost a quarter of United States energy consumption. The NYMEX futures contract trades in units of 10,000 million British thermal units (mmBtu), with a minimum tick of .1 cent worth $10.00 per contract. Due to the volatility of natural gas futures, this is a treacherous market attractive to speculators/ individual traders.
Gasoline is the largest single volume refined product sold in the United States and accounts for almost half of national oil consumption. It is sensitive to seasonal fluctuations-summer tends to bring greater gasoline demand for the driving season. It is a highly diverse market, making it subject to intense competition and price volatility.
These markets are subject to seasonal fluctuations-mild weather may lessen the need for heating oil. Also known as No.2 fuel oil, heating oil accounts for about a quarter of the yield of a barrel of crude, the second largest “cut” after gasoline. The futures contract is based on delivery in New York harbor, the principal cash market trading center. Heating oil futures contracts are also used to hedge
Propane is a by-product of natural gas processing and oil refining. Propane is used in diverse markets: cooking, crop-drying, heating, and feedstock for production of petrochemicals. It provides an effective pricing and risk management tool for the gas liquids sector of the energy industry
Due to the high leverage involved in futures trading, there’s a possibility of loss greater than your original investment. To minimize risk in a volatile energy market, MiNY futures are a safer way to trade the crude oil market. At 50% of the size of a standard futures contract, these contracts trade electronically nearly 24 hours a day. The smaller contract size means correspondingly less exposure to the market and less risk, ideal for those who have limited trading capital or are new to futures trading and want to develop a disciplined trading strategy, as well as the confidence required to be a futures trader.
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