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Why Students in Oil and Gas Management Programs Need to Know About Commodity Trading

Sep 6, 2018 4:03:33 PM / by Geneva Business School

Students from the Geneva Business School attending a conference.

So much of what we buy every day is developed from a small number of commodities. These natural resources are crucial for producing so much of the food we eat or the energy we use in our houses and cars. Valuable commodities, which include oil and natural gas as well as corn, milk and gold, are bought and sold on the commodity trading market, also known as futures trading.

Rather than trying to predict the performance of a company, investors forecast the future value of these commodities. They take on the risk and reward associated with these futures and protect the commodity producer and buyer from price volatility in the market. This is particularly important in the oil and gas sector, a very active market which experiences ongoing fluctuations.

Students completing an MBA in Oil and Gas Management at Geneva Business School study commodity trading as an orientation subject, which allows them to build their knowledge of market and trading principles, paving the way for successful careers in this area. Here’s a helpful introduction to the topic.

How a Commodity Trade Works

Students pursuing an Oil and Gas Management degree need to learn to recognize the key trading differences between normal stocks and commodities. In commodity trading, a contract is agreed between the buyer and seller which sets out the amount, price and date of delivery for the commodity. This offers price security for both parties, but an investor can buy the contract if they predict that the commodity will increase or decrease in value. The contract can then be sold on again, without ever having to take delivery of the commodity.

Gasoline and heating oil are processed in different ways from crude oil. ‘Light Sweet’ crude oil is the most popular version traded by investors, and it’s bought and sold on a limited number of markets, including the New York Mercantile Exchange.

 oil and gas management degreeGain expert insights into commodity trading at Geneva Business School

Students in Oil and Gas Management Courses Should Know the Factors Which Affect Commodity Value

Trading is all about foresight and spotting opportunities. Crude oil prices fluctuate significantly, ranging from $108 per barrel in June 2014 to as low as $30 per barrel just under two years later. Crude oil and natural gas are traded on the futures market and can produce significant returns if investors recognize future trends. 

One of the most significant factors affecting crude oil value is political instability in the Middle East. This usually leads to a spike in prices because of uncertainty about commodity supply. Trends can be identified through thorough analysis of the political environment, as well as the performance of the US dollar. Generally, a lower dollar leads to higher oil prices and vice-versa. Investors usually sell their commodity contracts quickly if future trends are unfavorable.

Seasonal Factors Affecting Oil and Gas Value in the Commodities Market

The weather is a key factor affecting crude oil and natural gas prices in the futures market, and students in oil and gas management courses might be surprised to learn how the price of both commodities differs throughout the year.

Natural gas is obviously crucial for heating homes and other buildings during winter time, but it’s also needed for cooking. That maintains steady demand, and a higher price as a result. Heating oil, originating from crude oil, is only in demand during cold weather spells. In times of low demand, like during the summer, a higher proportion of crude oil can be distilled into gasoline to meet demand during busier driving periods.

 oil and gas management programsThorough analysis of weather trends could generate positive returns in futures trading

Enroll in one of the most comprehensive oil and gas management programs available.

Find out more about our in-depth course at Geneva Business School.

Topics: oil and gas management degree, oil and gas management courses, oil and gas management programs

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