Energy Markets and Economics
Expert-defined terms from the Professional Certificate in Oil and Gas Trading course at London School of Business and Administration. Free to read, free to share, paired with a globally recognised certification pathway.
Energy Markets and Economics Glossary #
Energy Markets and Economics Glossary
1. Arbitrage #
Arbitrage refers to the practice of buying and selling the same asset in differe… #
In energy markets, traders may engage in arbitrage by purchasing electricity in one market and selling it in another where prices are higher.
2. Backwardation #
Backwardation occurs when the futures price of a commodity is lower than the spo… #
This may indicate a current shortage of the commodity and expectations of lower prices in the future.
3. Base Load #
Base load refers to the minimum amount of electricity needed to meet constant, a… #
Power plants that provide base load power typically run continuously at a constant output.
4. Bear Market #
A bear market is characterized by declining prices and a pessimistic outlook on… #
In energy markets, a bear market may result from oversupply, weakening demand, or geopolitical factors.
5. Brent Crude #
Brent Crude is a major trading classification of sweet light crude oil that serv… #
It is sourced from the North Sea and is used to price two-thirds of the world's internationally traded crude oil supplies.
6. Contango #
Contango refers to a situation where the futures price of a commodity is higher… #
This may indicate expectations of higher prices in the future and can create opportunities for storage and arbitrage.
7. Demand Response #
Demand response is a strategy used to manage electricity consumption in response… #
By adjusting consumption during peak periods, consumers and businesses can reduce costs and help balance the grid.
8. Energy Trading #
Energy trading involves buying and selling energy commodities such as electricit… #
Traders may speculate on price movements, hedge against risks, or engage in arbitrage to profit from market inefficiencies.
9. EIA (Energy Information Administration) #
The Energy Information Administration is an independent agency of the U #
S. Department of Energy that collects, analyzes, and disseminates energy information to inform policymakers and the public about energy markets and trends.
10. FERC (Federal Energy Regulatory Commission) #
The Federal Energy Regulatory Commission is a U #
S. government agency responsible for regulating the interstate transmission of electricity, natural gas, and oil. FERC oversees energy markets, infrastructure, and pricing to ensure fair competition and reliability.
11. Floating Rate #
A floating rate is a variable interest rate that fluctuates with changes in mark… #
In energy markets, floating rates may be used in contracts for natural gas, electricity, or oil to reflect changing prices.
12. Forward Contract #
A forward contract is an agreement between two parties to buy or sell a commodit… #
Forward contracts are used in energy markets to manage price risk and secure future supply or demand.
13. Fracking #
Fracking, or hydraulic fracturing, is a method of extracting natural gas and oil… #
This controversial technique involves injecting high-pressure fluids to release trapped hydrocarbons.
14. Gasoline Crack Spread #
The gasoline crack spread is a measure of the profit margin for refining gasolin… #
It is calculated by subtracting the cost of crude oil from the price of gasoline and is used by refiners to assess profitability.
15. Geopolitical Risk #
Geopolitical risk refers to the potential impact of political, social, or econom… #
Factors such as wars, sanctions, or trade disputes can disrupt supply chains, affect prices, and create uncertainty for traders.
16. Hedging #
Hedging is a risk management strategy used to protect against adverse price move… #
In energy markets, companies may hedge their exposure to volatile prices by using financial instruments such as futures contracts or options.
17. Intraday Trading #
Intraday trading involves buying and selling energy commodities within the same… #
Traders may take advantage of short-term price fluctuations or news events to profit from rapid market movements.
18. LNG (Liquefied Natural Gas) #
Liquefied Natural Gas is natural gas that has been cooled to a liquid state for… #
LNG is used as a cleaner-burning alternative to traditional fuels and can be traded globally in specialized markets.
19. Market Fundamentals #
Market fundamentals refer to the supply and demand factors that drive prices in… #
These include production levels, consumption patterns, inventories, geopolitical events, and economic indicators.
20. OPEC (Organization of the Petroleum Exporting Countries) #
OPEC is a cartel of major oil #
producing countries that coordinates production levels to influence global oil prices. Member countries include Saudi Arabia, Iran, Iraq, and Venezuela, among others.
21. Peak Load #
Peak load refers to the maximum amount of electricity needed to meet demand duri… #
Power plants that provide peak load power are typically dispatched when demand is highest.
22. Price Discovery #
Price discovery is the process of determining the market price for a commodity t… #
In energy markets, price discovery may occur through trading on exchanges, over-the-counter markets, or auctions.
23. Renewable Energy #
Renewable energy is derived from natural resources that are replenished on a hum… #
Renewable sources are increasingly used to generate electricity and reduce reliance on fossil fuels.
24. Shale Oil and Gas #
Shale oil and gas are extracted from shale rock formations through hydraulic fra… #
The development of shale resources has transformed the energy landscape, leading to increased production and changing global supply dynamics.
25. Speculation #
Speculation is the practice of trading in financial markets to profit from price… #
Speculators in energy markets may use leverage and derivatives to amplify returns.
26. Storage Capacity #
Storage capacity refers to the amount of energy that can be stored in facilities… #
Adequate storage capacity is essential for managing supply and demand imbalances in energy markets.
27. Swing Producer #
A swing producer is a country or company that can quickly adjust its oil product… #
Saudi Arabia is often considered a swing producer in the global oil market.
28. Tariff #
A tariff is a tax or duty imposed on imported or exported goods #
In energy markets, tariffs may be applied to cross-border electricity or natural gas transmission to cover costs and regulate trade.
29. Upstream and Downstream #
In the energy industry, upstream refers to activities involved in the exploratio… #
Downstream includes refining, distribution, and marketing of refined products to end consumers.
30. Volatility #
Volatility is a measure of how much the price of a commodity fluctuates over a g… #
High volatility in energy markets can create opportunities for traders but also increase risks and uncertainty.
31. WTI (West Texas Intermediate) #
West Texas Intermediate is a grade of crude oil used as a benchmark in oil prici… #
WTI is known for its high quality and low sulfur content, making it a popular choice for futures contracts and refining.
32. Yield Curve #
The yield curve is a graph that plots the yields of bonds of similar credit qual… #
In energy markets, the yield curve for oil or gas futures can provide insights into market expectations and supply dynamics.
33. Zero #
Sum Game:
A zero #
sum game is a situation in which one participant's gain is exactly balanced by another participant's loss. Energy markets can be considered zero-sum games, where profits and losses are distributed among traders based on price movements.
34. 24 #
Hour Trading:
24 #
hour trading refers to the continuous trading of energy commodities across global markets, allowing participants to buy and sell at any time of day. The availability of around-the-clock trading enables market participants to react to news and events in real-time.