Energy arbitrage involves exploiting price differences for the same or related energy products across different markets, time periods, or delivery points. This strategy capitalizes on temporary pricing inefficiencies caused by transportation constraints, storage limitations, seasonal patterns, or market dislocations. Energy arbitrage helps improve market efficiency and price convergence.

Common energy arbitrage opportunities include geographic spreads (same product, different locations), time spreads (same product, different delivery periods), and product spreads (related products like crude oil versus refined products). Successful energy arbitrage requires understanding infrastructure constraints, transportation costs, and regulatory differences between markets.

Real-world example: Traders exploit natural gas price differences between Henry Hub and European markets by shipping LNG from the U.S. Gulf Coast when European prices exceed U.S. prices plus transportation costs by sufficient margins.