Understanding Commodity Markets

Commodity story header

We’ve all been there before. While driving along we notice gasoline prices are lower than usual, so we pull in, top it off, and take advantage, despite the fact that we still have half a tank left. Then, the next morning we drive by that same gas station and see prices dropped an additional 10 cents. Or, we skip filling up and see gasoline prices have jumped 30 cents… So what gives?

The same volatility occurs in the natural gas and electric market. When dealing with commodities we are often damned if we do and damned if we don’t.

Energy prices are constantly on the move, and much like gasoline prices, a myriad of reasons come into play. Supply and demand is not always what moves the market. Factors such as storage levels, weather, a full moon, a trader having a bad day can swing the pendulum. Obviously I joke with the latter two but the point remains, it’s difficult to understand why these movements happen.

In today’s market I would assume that “energy saving” calls have picked up frequency in recent weeks. Why? Because marketers will develop a pitch based on the market being up or down. If the market goes up, they claim it’s a good time to get out. If the market goes down, they claim it’s a good time to get out. According to them, you should always be signing up. Yes, rates today might be lower than last year, but comparing your price then, to today, is not telling the whole story…

Just like mortgage rates, they change over time. Years ago 8% was the norm, whereas rates today are now below 4%. Did you make the wrong decision, pay too much, or get ripped off at 8%? No, at the time that was the market, and markets shift in time.

Buying in a down market is easy, you buy savings but understanding all that lies below the surface within that price is key. Energy components, operational changes, contract terms, program options, are all things to consider when jumping back in. Simply picking a rate is a short sighted reaction to a complexity that goes much deeper.

To learn more about your options, the market, and the things you can do to adjust costs, contact your energy representative. Your business is important, make sure you are asking the right questions. An in depth review and explanation is what it deserves, not just a “pick your price” approach in a commodity world that’s as volatile as the local gas station.

 

Understanding Commodity Markets
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