Energy Markets
Energy markets cover crude oil, natural gas, refined products and power. Learn the benchmarks, how they connect, what drives prices and how energy is traded.
Energy is the largest and most actively traded commodity sector. Crude oil, natural gas, gasoline, diesel and electricity power the global economy, and their prices affect inflation, company profits, currencies and politics. Energy futures on exchanges such as NYMEX (part of CME) and ICE are among the most liquid commodity contracts in the world. Understanding how energy markets connect is essential for commodity traders and useful for anyone following the economy.
The main energy markets#
| Market | Benchmarks | Lesson |
|---|---|---|
| Crude oil | WTI (US), Brent (international), Dubai and Oman (Middle East) | Crude Oil |
| Natural gas | Henry Hub (US), TTF (Europe), JKM (Asia LNG) | Natural Gas |
| Gasoline | RBOB (NYMEX), Eurobob | Gasoline and Heating Oil |
| Diesel and heating oil | ULSD (NYMEX), ICE gasoil | Gasoline and Heating Oil |
| Electricity | Regional power markets, such as PJM and ERCOT in the US | Regional, more local |
| Coal and carbon | Newcastle coal, EU carbon allowances | Linked to power generation |
How energy markets connect#
- Crude oil to products: refiners turn crude into gasoline, diesel and jet fuel. The difference is the refining margin, or crack spread. See Crack Spreads.
- Natural gas to power: gas fuels a large share of electricity generation, so power prices often follow gas prices.
- Oil and gas: once closely linked, US gas prices decoupled from oil after the shale boom, but global LNG contracts are still sometimes indexed to oil.
- Regional gas markets: liquefied natural gas (LNG) shipping links US, European and Asian gas prices.
What drives energy prices#
| Driver | Example |
|---|---|
| OPEC+ production policy | Output cuts or increases by Saudi Arabia, Russia and allies |
| Economic growth | Strong global growth raises fuel demand |
| Shale production | US output responds to prices with a lag of months |
| Geopolitics | Wars, sanctions, shipping disruptions in key straits |
| Weather | Winter cold and summer heat drive gas and power demand |
| Inventories | Weekly data shows tightness or surplus. See Storage and Inventories |
| Energy transition | Policies on renewables, electric vehicles and carbon |
| The dollar | Oil is priced in dollars |
Major energy shocks#
| Year | Event | Price effect |
|---|---|---|
| 1973 | Arab oil embargo | Oil prices roughly quadrupled |
| 1979 to 1980 | Iranian revolution, Iran Iraq war | Oil more than doubled |
| 2008 | Demand boom then financial crisis | WTI near $147 in July, below $35 by December |
| 2014 to 2016 | Shale surge, OPEC price war | Oil fell from above $100 to below $30 |
| 2020 | COVID demand collapse | Front month WTI briefly negative |
| 2022 | Russia's invasion of Ukraine | Brent above $120; European gas prices hit records |
Trading energy#
- Futures and options on NYMEX and ICE: WTI (CL), Brent (BZ or ICE Brent), natural gas (NG), RBOB (RB), ULSD (HO).
- Spreads: calendar spreads, WTI Brent, crack spreads. See Futures Spreads Explained.
- ETFs that hold futures, with roll costs. See Roll Yield.
- Energy stocks, which add company risk and benefit from rising prices.
Risks#
- High volatility and gap risk around OPEC meetings, inventory reports and geopolitical events.
- Contango drag for long ETF holders.
- Policy intervention: price caps, export restrictions, strategic reserve releases.
Frequently asked questions#
What are the main energy commodities?#
Crude oil, natural gas, gasoline, diesel and heating oil, along with electricity, coal and carbon allowances.
What is the difference between WTI and Brent?#
WTI is the US crude benchmark delivered at Cushing, Oklahoma; Brent is the international benchmark based on North Sea crude.
What drives energy prices?#
OPEC+ policy, economic growth, shale output, geopolitics, weather, inventories, energy policy and the dollar.
Next, study the most important commodity of all in Crude Oil.
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Mentioned in
- Storage and InventoriesCommodities
- Swaps ExplainedBonds, Rates and Credit