Understanding How the Energy Market Works

June 14, 2018 | Alexandra Degala

The energy market in general deals with trading and supplying energy for both commercial and personal uses. This market lies beyond electricity as it also extends to others like oil, coal, and other forms of fuel consumed by businesses and individual establishments. Specific energy markets are one of the most rapidly growing and most complex industries in the world.

Since energy is an extremely valuable commodity, it particularly plays enormous roles in society and global economy. Geopolitics and finance are also heavily impacted by the demand and supply of energy.

Economies worldwide responds accordingly to the rise and decline of the supply of energy. For example, a sudden significant increase in energy prices will reduce industries’ consumption and output, eventually resulting in recessions. Rising transportation costs would lead to a lower volume of goods but at higher prices. Mass unemployment paired with higher prices of food and other essentials would inflict a devastating blow to people regardless of social class.


What factors influence energy markets?

Energy markets can be quite fluid and are attached to a plethora of factors that can affect their performances. Prices may appear to fluctuate at seemingly random moments.

Weather is a common factor that influences energy markets. Higher temperatures drive people and businesses to consume energy at higher volumes in an attempt to ward off the heat. This causes a spike in supply and prices. It also happens in a similar way with colder temperatures. When cold weather moves in, people and businesses also scramble to heat up their homes which then leads to another spike in supply and prices.

Natural disasters such as earthquakes, hurricanes, and floods can severely limit the use of equipment for energy production or wipe them all out entirely. They can destroy the power plants, the modes for transmission and distribution, all at once. With the ability to eliminate both the supplier and the supplied, they are considered a top risk for energy firms because of their viciousness, their scale, and their unpredictability.

Geopolitical events are also major factors that the market is hinged on. Political unrest in an area which requires a heavy supply of energy, will trigger a higher price in the market. The unrest will cause a greater demand for energy. This and the uncertainty in production and the possible increase in generation and distribution will cause the price to skyrocket. Developments in the economy tugs at the market as well. High economic growth will result in high energy consumption, pushing the prices higher as well.

Prices of oil and gas are considered significant factors when talking about energy. Oil and gas can be used as substitute fuel for each other, so their prices usually rise and fall together as a tandem. Industrial energy providers adjust accordingly and so do their market prices. When the inflation of oil and gas prices loom, the energy markets reacts to it by raising prices as well. Sometimes, it can also be due to the fact that whenever oil and gas price hikes become imminent, investors quickly move away their money into safer markets.

Development in infrastructures, closing and opening power plants, and changes in regulations, also dictate how the energy markets move. For example, in the case of the electricity market, fuel prices, weather, power plant capacities, the economy, and general demand dictate how prices play. It must also be noted that power production, grid and transmission prices, and taxes and fees play big role in how much an end user is charged.


Is dealing with the energy markets easy?

Dabbling in energy trade and supply is challenging for most businesses and business owners. Energy markets are known to be infamously volatile since prices can easily fluctuate unpredictably. Costs can change from one hour to the other, from one day to the next, or from one week to another.

Prices rise and drop seemingly on a whim so there is no right time to say that it is the best time to buy energy. You can only religiously monitor the supply and price fluctuations in the markets as they happen and take opportunities as they unfold.


How can you keep tabs on the energy markets?

It would be near impossible for an individual on his own to keep up with a frequent and thorough monitoring of the energy market. This is why special tools and software were developed to make the complex, constantly ongoing energy procurement process more bearable for a person.


It is important to be vigilantly aware of the fluctuations in order to catch the best prices at the best opportunities.WeCompete Energy can help monitor the market for you. Give us a call at (844) 937-7727 or email us at contact@wecompeteenergy.com.