Differentials, in the context of energy commodities trading, refer to the price differences between different locations or grades of a specific commodity. These variations occur due to factors such as supply and demand imbalances, transportation costs, infrastructure constraints, and quality variations.
Energy commodities, such as crude oil or natural gas, are often traded in different locations or regions with varying supply and demand dynamics. Differentials arise when the prices of these commodities differ between these different locations or when different grades or qualities of the same commodity have varying prices.
These differentials provide opportunities for traders to profit by exploiting price differences. For example, a trader may purchase a commodity at a lower price at one location and then sell it at a higher price in another location where demand exceeds supply. By understanding and analyzing these differentials, traders can make informed decisions regarding when and where to buy or sell energy commodities.
If you would like to learn more about differentials in energy commodities trading, the following websites provide valuable information:
1. Investopedia – “Differential”: This article from Investopedia provides a comprehensive overview of what differentials are, how they are calculated, and their significance in commodities trading. You can access it here:
2. Energy Trading & Risk Management (ETRM) Wiki – “Differential”: The ETRM Wiki is an extensive online resource for energy commodities trading. Their page on differentials offers insights into various types of differentials and their impact on the trading industry. Find the page here:
Please note that the availability and content of these websites are subject to change over time.
This A.I.-generated glossary is intended to provide a convenient means to understand terminology used on this website in the context of physical commodities trading. Some terms may have alternative and/or expanded definitions that may not be relevant here and thus not included. Sources provided are for reference and not intended to be an endorsement of the broader content on that website. Suggestions, questions, or corrections can be provided in the comment box on definition pages.