Commodities, Energy and Carbon

• Carbon AllowanceIntermediate4 min read

  A carbon allowance is a permit to emit a set amount of greenhouse gas — in the EU Emissions Trading System, one tonne of CO₂ equivalent. Total allowances are capped, and companies that emit less can sell spare allowances, which gives carbon a market price.

• Crude Oil Benchmarks: WTI and BrentBeginner4 min read

  WTI (West Texas Intermediate) and Brent are the two main crude oil benchmarks. WTI is a US crude priced for delivery at Cushing, Oklahoma; Brent is based on North Sea crude and is used to price much of the world’s oil. Their price difference is called the Brent–WTI spread.

• Battery ArbitrageAdvanced4 min read

  Battery arbitrage is charging a battery when electricity is cheap and discharging it when power is more valuable. Profit depends on the price gap and the round-trip efficiency — the share of stored energy that comes back out, often around 85–90% for lithium-ion systems.

• Contract for Difference (Power Markets)Advanced4 min read

  In power markets, a contract for difference is a long-term arrangement that pays a generator the difference between a market reference price and an agreed strike price when the market is lower, and usually requires it to pay back when the market is higher. It is different from the leveraged trading CFDs offered by brokers.

• Convenience YieldAdvanced3 min read

  Convenience yield is the benefit of physically holding a commodity — for example, being able to keep a factory running during a shortage. A high convenience yield helps explain why near-term futures can trade above later ones (backwardation).

• Crack SpreadAdvanced3 min read

  A crack spread is the difference between the price of refined products, such as gasoline and diesel, and the crude oil used to make them. It approximates a refiner’s margin; a common version is the 3-2-1 spread (three barrels of crude into two of gasoline and one of distillate).

• Heating and Cooling Degree DaysIntermediate3 min read

  Degree days measure how much heating or cooling demand the weather creates. A heating degree day counts how far the daily average temperature falls below a base (65°F in the US, often around 18°C elsewhere); a cooling degree day how far it rises above it. They drive natural gas and power forecasts and weather derivatives.

• Inventory-to-Use RatioAdvanced3 min read

  The inventory-to-use ratio (or stocks-to-use) compares the stock of a commodity with how much is expected to be used over a period. Low ratios mean thin buffers, which tends to make prices higher and more volatile.

• Locational Marginal PriceAdvanced3 min read

  A locational marginal price is the cost of delivering one more megawatt-hour of electricity to a specific point on the grid. It combines the energy price with the cost of transmission congestion and losses, so prices differ by location.

• Negative Electricity PriceIntermediate3 min read

  A negative electricity price means generators pay to deliver power. It happens when supply from inflexible or subsidised sources, such as wind and solar on a sunny, windy day, exceeds demand and shutting down is more costly than paying buyers.

• OPECBeginner3 min read

  OPEC, the Organization of the Petroleum Exporting Countries, is a group of oil producers that coordinates output policy. Since 2016 it has also worked with other producers, including Russia, as OPEC+. Its production decisions can move oil prices sharply.

• Power Purchase AgreementIntermediate4 min read

  A power purchase agreement is a long-term contract to buy electricity, often from a specific wind or solar project, at an agreed price or formula. It gives the generator predictable revenue and the buyer a known cost.

• Power Units: MW, MWh, GW and TWhBeginner4 min read

  A megawatt (MW) measures power — the rate of producing or using energy — and a megawatt-hour (MWh) measures energy: 1 MW for one hour. 1 gigawatt (GW) is 1,000 MW, and 1 terawatt-hour (TWh) is 1,000,000 MWh. Wholesale power is usually priced per MWh.

• Scope 1, 2 and 3 EmissionsIntermediate4 min read

  Under the Greenhouse Gas Protocol, scope 1 emissions come directly from sources a company owns or controls, scope 2 from the electricity, heat or steam it buys, and scope 3 from everything else in its value chain, such as suppliers and the use of its products.

• Spark and Dark SpreadsAdvanced3 min read

  The spark spread is the power price minus the cost of the gas burned to make that power; the dark spread does the same for coal. “Clean” versions also deduct the cost of carbon allowances. Together they approximate a power plant's gross margin.

• Stranded Asset RiskIntermediate3 min read

  Stranded asset risk is the chance that an asset, such as a coal plant or oil reserves, loses value or must be written off earlier than expected because of new regulation, falling demand or cheaper technology.

• CommoditiesBeginner4 min read

  Commodities are raw materials traded in bulk: energy such as oil and gas, metals such as gold and copper, and farm products such as wheat and coffee. Traders mostly reach them through futures contracts, ETFs or CFDs rather than physical delivery.

• Gold and Safe-Haven AssetsBeginner4 min read

  Safe-haven assets are ones investors buy when markets are in turmoil because they expect them to hold their value — classically gold, US Treasuries, the Swiss franc and the Japanese yen. They often, but not always, rise when stocks fall.

Each term is defined in one sentence. Terms marked “Article in preparation” will get a full step-by-step article.

• Baltic Dry IndexBDI

  IntermediateGlossary

  The Baltic Dry Index tracks what it costs to ship bulk raw materials such as iron ore, coal and grain by sea. Rising rates can signal strong demand for raw materials, but the index also jumps and slumps with the supply of ships, so read it with care.

• Commodity Indices

  IntermediateGlossary

  Commodity indices track a basket of futures across energy, metals and farm goods. The S&P GSCI weights by world production, so oil dominates it; the Bloomberg Commodity Index caps sectors for balance. Index funds roll futures, so returns differ from spot prices.

• LBMA Gold Price

  AdvancedGlossary

  The LBMA Gold Price, once called the gold fix, is a benchmark price for gold set twice each London business day through an electronic auction. Many contracts and central banks use it for valuation.

• Precious Metals

  BeginnerArticle in preparation

  Precious metals are rare metals with high value per ounce — gold, silver, platinum and palladium. Gold trades mainly as money and a safe haven; silver, platinum and palladium also depend on industrial demand, so they swing more with the economy.