The Energy Sector: Breaking from the Norm and Profiting Because of it

Posted on Posted in Financial

As it relates to financial investments, the energy sector is nothing if not unpredictable. The thing that many investors have understood throughout the years is that while the energy sector offers potential returns that are quite significant, the downside is that this market is full of volatility, unpredictability and unprecedented shifts in the norm. Such is the case with the deviation that gasoline prices have made pursuant to crude oil prices in recent years.

The thing to understand and what has driven many investors to successful investment positions in crude oil or gasoline products is that crude oil and gasoline prices have remained fairly attached to the hip. In most cases, gasoline prices take their lead from crude oil prices. If crude oil prices are high, gasoline prices are high. Conversely, if crude oil prices are low, gasoline prices will typically be low as well. However, the energy sector is always unpredictable and this is primarily the case if the market is not acting as it normally does. Today, crude oil prices are low, but gasoline prices continue to increase.

For the savvy investor, taking advantage of this particular scenario is important. In order to take advantage of it, an investor will first need to understand why it’s happening, as this can help them to further their profitable positions in the energy market.

In essence, oil prices are being outpaced by gas prices because of demand for gasoline, reduced refinery capabilities, and increased production from OPEC nations like Saudi Arabia. With large caches of surplus oil, prices are generally going to be low. Since production has remained at record levels by many OPEC nations, this further increases the glut of crude oil and lowers the price. However, because of the demand for gasoline products and a short supply of refineries within the United States, gasoline products are more in demand, thus increasing the overall cost for a gallon of gas globally.

To be sure, this is just a brief overview of the actual problem. If you’d like to look for more information and details regarding this, you may want to do a bit more research to find out some of the finer points of this particular issue. This can help you to know where you should invest in the energy market.