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What Are Energy Commodities? (And How to Start Trading Them in 2024)

The Essential Guide
Last Updated:

In this energy commodity guide, we explain what types of energy commodities make up the energy market.

We explore the present energy consumption figures, future projections, and the types of energies we are likely to consume more of in the near future.

Read on to find out about current global energy trends, which countries produce the most energy, and where you can start trading energy commodities with regulated brokers in .

What Is The Role Of Energy Commodities?

Perhaps more than any category of commodities, energy has the biggest impact on our daily lives.

Energy prices affect the cost of virtually everything we consume including our groceries, the clothes we wear, the electronic devices we use, and the gasoline we put in our cars.

They determine the costs of heating and cooling our homes, businesses, factories, hospitals, and schools.

In fact, a world without energy would be a world without the vital things we need to survive!

How Much Energy Do We Consume?

The unit we typically use to define quantities of energy is the British Thermal Unit (Btu), which is a measurement of the heat content of fuels.

According to the US Energy Information Agency (EIA), annual worldwide energy consumption exceeds 125 quadrillion Btu and is expected to grow to 138 quadrillion Btu by 2050.

To put the enormity of these numbers into context, we can compare them to fossil fuel consumption in the world’s largest economy.

See which states produce the most fossil-fuel-derived energy in the United States.

How Much Energy Does The US Consume?

The United States annually consumes:

  • 7.2 billion barrels of petroleum (35.9 quadrillion Btu),
  • 27.5 trillion cubic feet of natural gas (28.4 quadrillion Btu)
  • 729.5 million short tons of coal (14.2 quadrillion Btu)

Yet, US consumption of these fossil fuels amounts to only 13.6% of total global energy consumption.

In other words, the world consumes a staggeringly large amount of energy.

Different Types of Energy

The energy we use can be divided into two groups. Renewable and non-renewable.

Types Of Renewable Energy

Renewable Energy
Solar Park and Wind Farm – Image by Erich Westendarp from Pixabay

Renewable energy accounts for about 21% of global electricity generation and about 12.5% of overall energy consumption.

There are five main renewable energy sources:

  1. Solar – energy obtained from the sun
  2. Geothermal – energy harnessed from heat within the earth
  3. Wind – energy harnessed from the natural movement of air
  4. Biomass – energy obtained from living matter, usually from plants
  5. Hydropower – energy obtained from flowing water

In the United States, biomass accounts for about half of all renewable energy and 5% of total US energy consumption.

The main biomass fuel is ethanol, which is a clear, colorless alcohol produced mostly from grains or sugar.

Types Of Non-Renewable Energy

Almost 90% of the energy consumed worldwide derives from five non-renewable sources:

  1. Petroleum Productscrude oil and various refined crude oil products including gasoline, heating oil, diesel fuel, jet fuel, lubricating oils, and asphalt.
  2. Hydrocarbon gas liquids – gas liquids derived from natural gas and crude oil and include alkanes (e.g., propane and butane) and alkenes (e.g., ethylene and propylene).
  3. Natural gas – energy consisting mainly of methane that is found deep beneath the earth’s surface.
  4. Coal – a sedimentary rock that can be burned for fuel.
  5. Nuclear energy – An energy source derived from splitting the atoms of uranium and producing a chain reaction of energy.

What Are the Main Energy Commodities?

With the exception of ethanol and some electricity generation, the most developed commodity trading markets are in non-renewable energy resources.

In addition to regulated and (mostly) liquid futures markets, traders can trade these commodities indirectly through products such as shares, exchange-traded funds (ETFs), and contracts-for-difference (CFDs).

CommodityDescriptionPrice FluctuationsFutures Exchange
Crude OilCrude oil has different variations based on geography and physical characteristics: West Texas Intermediate (WTI), also known as light sweet crude, and Brent Crude are two of the most frequently traded varieties.$0.01 per barrel NYMEX and ICE
GasolineCommodity markets trade a product known as Reformulated Blendstock for Oxygenate Blending (RBOB) gasoline. In the United States, about 47% of each barrel of crude oil goes to produce gasoline for cars and light-duty vehicles.$0.0001 per gallonNYMEX
Heating OilThis fuel is refined from crude oil and used to heat homes and businesses. In the United States, about 28% of each barrel of crude oil goes to produce distillates such as diesel fuel and heating oil.$0.0001 per gallonNYMEX
CoalCoal is a fossil fuel used mainly in power generation and steel production.$0.01 per tonICE Futures Europe
Natural GasNatural gas is a fossil fuel used in electric power generation and in a variety of residential, commercial and industrial applications such as heating and refrigeration.$0.001 per million BtuNYMEX
ElectricityElectricity powers virtually every segment of the world economy.$0.05 per megawatt hours (MWh)NYMEX
EthanolEthanol is used as a blending fuel with gasoline.$0.001 per gallonNYMEX
UraniumUranium is a radioactive metal used to produce nuclear energy.$0.05 per poundNYMEX

Several long-term trends could create trading opportunities in energy over the next two decades:

  1. Emerging Market Growth
  2. Energy Efficiency Revolution
  3. Population Growth
  4. Electricity Penetration
  5. Industrialization in Developing Economies

Emerging Market Growth

One of the most important trends in energy markets is the disparity in expected energy demand between developed and developing nations.

Global energy usage is expected to climb by almost 30% over the next two decades.

However, growth in developed nations is forecast to remain flat. In other words, emerging market nations will account for the entire increase.

This forecast could have important ramifications for commodity markets.

How Does Market Growth Impact Energy Demand?

Traders should pay close attention to economic growth in emerging market economies for clues about energy demand.

Similarly, traders should pay close attention to new sources of energy supplies in emerging market countries.

China and India, in particular, will have to make important decisions about issues such as ethanol production, nuclear energy programs, and coal-fired power plants.

These decisions could have a significant impact on individual commodity prices.

Energy Efficiency Revolution

The anticipated flat growth for energy in developed countries is not due to poor economic conditions.

Rather, developed economies in North America and Europe will benefit from greater energy efficiency in the coming decades.

More efficient natural gas-fired power plants, smart grid technology, and fuel-efficient cars are some of the developments that could produce a new energy efficiency revolution.

Lake Side Power Plant
Lake Side Power Plant – A Natural Gas Power Plant – Image by Mscalora under Creative Commons 4.0

One of the interesting unknown is how far these technologies can advance and how they might change the consumption shares of renewable versus non-renewable energy.

Traders can capitalize on these trends by trading energy efficiency technologies.

Population Growth & Energy Usage

By 2040, the world’s population is expected to exceed 9 billion.

Demographers forecast that three-quarters of the world will reside in Asia or Africa at this time.

Projected Word Population Growth – Image via Flickr by Mo Ibrahim Foundation under Creative Commons 2.0

The growing world population will create new competition for energy resources. It will also likely spur new innovation in energy as fast-growing countries struggle to deal with rising demand and constrained energy resources.

China and India, in particular, will face the biggest challenges in managing population growth.

As the people in these countries move from rural areas into cities, demand for energy will certainly rise. This could have an enormous impact on energy prices.

Electricity Penetration

Nearly 1.3 billion people in the world have no access to electricity, including about one-quarter of the population of India.

Over the next two decades, India and other emerging countries will trade power grid infrastructures as their economies mature.

These new power generators will require some sort of fuel – crude oil, natural gas, coal, nuclear, or renewables – to operate.

As access to electricity expands to more economies across the globe, energy needs are bound to increase.

Industrialization in Developing Economies

Industrial demand for energy could top 70% by 2040.

However, most of this demand may occur in developing economies. According to ExxonMobil, the industrial demand for energy in India will triple by 2040.

India and other developing nations in Asia, the Middle East, and Africa will require factories to supply metals, machines, and manufactured goods.

This new source of industrial energy demand could offset waning demand from industry in developed countries.

Which Countries Produce The Most Energy?

Here are the top energy producing countries in the world:

CommodityFlagTop Producing CountryAmount Produced
Crude OilRussia10,500,000 barrels per day
Natural GasFlag of USAUnited States of America766 billion cubic meters per year
CoalFlag of ChinaChina3,874 million tonnes per year
ElectricityFlag of ChinaChina6,142 billion kWh per year
EthanolFlag of USAUnited States of America15,329 millions of gallons per year
Heating OilFlag of USAUnited States of America18,119 thousand barrels per day
GasolineFlag of USAUnited States of America8,900 thousand barrels per day

Traders can follow the broad energy markets by monitoring the performance of some of the main indices that track the sector.

Energy indices are a good barometer for the health of the sector since they measure the performance of the shares of companies engaged in the production and sale of energy.

Energy companies typically have large initial capital costs to develop and explore for resources.

Later in their development, they have mostly fixed costs such as salaries, rent, and debt servicing.

How Does Speculating On Energy Prices Work?

In theory, then, trading energy company shares is a way to make a leveraged bet on the price of energy commodities. As the commodity’s price rises, more revenues should flow to the bottom line in the form of profits.

However, many factors other than commodity prices can affect the performance of energy company share prices:

  • Production costs: A rise or fall in the cost of wages or equipment, for example, affects profits.
  • Competition: The strength of competitors can affect the profitability of energy companies.
  • Interest rates: Changes in interest rates can affect the cost of debt servicing. This factor is especially important to utility companies with huge infrastructure financing costs.
  • Local Economies: The relative strength of the economy where a company sells its products can impact its profits.
  • Multiple Contraction or Expansion: The market assigns price/earnings multiples to companies based on perceptions of future prospects. Changes to these multiples can cause fluctuations in share prices.

Top Energy Indices

Here are three leading energy indices for traders to track in 2021:

IndexLast SaleDescription
S&P 500 Energy Index
Index that comprises those companies included in the S&P 500 that are classified as members of the energy sector.
Dow Jones U.S. Select Oil Equipment & Services Index
Index designed to measure the performance of U.S. companies in the oil equipment & services sector.

Where Can I Trade Energy?

If you are looking to get started trading energy or other commodities, here’s a list of regulated brokers available in to consider.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.

Further Reading

Traders can find additional information on trading energy from the following Commodity.com resources:

To compare how energy commodities partake in the global market, see the commodity categories on precious metals, and agricultural commodities.

We also conduct regular research on energy production and usage in the US. See these statistics for more:

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