Years ago you could almost always depend on the seasonality of the natural gas market. Some energy investors swear by one rule, “buy low in the summer and sell high in the winter.” They use a seasonal approach to trading natural gas. Usually the weakest time of year for natural gas demand was during the hot summer months. Conversely, heating during the old winter months historically marked the peak times for demand. Keeping a ten-day weather forecast can help you prepare for temperature changes that can cause a short-term price swing. This was once considered a waste fuel, as companies routinely burned it off just to get rid of it. Today, thanks to new drilling technologies and concerns about oil depletion, natural gas is being looked at as the fuel of the future. Crude oil, on the other hand, is the most widely traded commodity on the planet. Oil presents a myriad of investment opportunities.
It’s important to define energy so that you know the nature and scope of a market you’ll be putting your hard-earned dollars into. If you want to be an Energy Investor, it’s important to understand what you are investing in. The Webster Dictionary definition of energy breaks it down into several parts. Energy has a dynamic quality and is a vigorous exertion of power. It is a fundamental entity of nature that is transferred between parts of a system in the production of physical change within the system and is usually regarded as the capacity for doing work. It is usable power, such as heat or electricity, or the resources for producing such power. For investment purposes it’s important to know the two types of energy are primary energy and secondary energy. Primary energy sources can’t be man-made. Primary energy sources include crude oil, natural gas, coal, uranium, solar energy, wind energy, geothermal energy, and biomass. Some sources of primary energy are transformed into more usable forms of energy. Electricity, for example, is a form of secondary energy because it’s produced from primary sources. Gasoline is also a secondary energy source because it’s refined from oil.
Energy investors don’t need a crystal ball to see the fundamental shift taking place in the North American natural gas industry. In a relatively short period of time, North America has increasingly relied on unconventional sources to meet demand. To judge how significant a role unconventional natural gas sources are playing, look no further than the US Energy information Administration’s breakdown of the growth in withdrawals and production between 2007 and 2011.
Your first Energy Investment can be rather intimidating. You need to familiarize yourself with the terminology. Then decide how many shares you want to purchase. Then you need to decide what type of order to place. When making a purchase your options includes a market order and a limit order. A market order guarantees your trade will be executed but doesn’t guarantee a price. It executes the trade at whatever the current ask price is. A limit order guarantees a certain price but doesn’t guarantee that your order will be completed.