In theory, then, trading energy company shares is a way to make a leveraged bet on the price of energy commodities. As the commodity’s price rises, more revenues should flow to the bottom line in the form of profits. However, many factors other than commodity prices can affect the performance of energy company share prices:

Production costs: A rise or fall in the cost of wages or equipment, for example, affects profits. Competition: The strength of competitors can affect the profitability of energy companies. Interest rates: Changes in interest rates can affect the cost of debt servicing. This factor is especially important to utility companies with huge infrastructure financing costs.

Local Economies: The relative strength of the economy where a company sells its products can impact its profits.

Multiple Contraction or Expansion: The market assigns price/earnings multiples to companies based on perceptions of future prospects. Changes to these multiples can cause fluctuations in share prices.