Explore Oil Futures, Benchmark of Global Crude Demand
Crude Oil is the most actively traded commodity on the world markets and NYMEX provides the largest and most liquid oil futures contract. Light, sweet crude oil has a low sulphur content and it yields a high percentage of important products like heating oil, diesel, petrol (gasoline), jet fuel, and as such is favoured by refineries. With worldwide concern about the long term trend for higher oil prices and the implications for economic growth, the energy futures markets will be closely watched going forward.
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This crude oil futures contract has asize of 1,000 barrels with a final delivery point in Cushing, Oklahoma, and it serves both the US domestic and international markets.
It is possible to trade this contract on the global CME Comex electronic trading platform.
Another blend of crude oil traded on NYMEX or the CME Comex global platform is light sweet Brent, extracted from the North Sea off Britain’s north east coast. Though most of this crude blend is refined in NorthWest Europe, a fairly high proportion of the 500,000 barrels per day output is shipped from the Shetland Islands over to the US.
You can trade the Brent Crude Oil Financial Contract in units of 1,000 barrels, and the trading months for Brent crude oil are from 2008 through to 2015.
While open futures contracts give you exposure to a particular crude oil for future delivery, which if you are trading for gain, you would likely sell in the month prior to delivery, there is another type of contract traded on the exchanges.
These are called swap contracts or swaps, also with a 1,000 barrel trading unit, and a contract minimum price fluctuation of $0.001 per barrel.
Basically a swap contract reflects a price movement based on the difference in settlement price between two separate open futures contracts. For example, on NYMEX Clear Port it is possible to trade Swap Futures for Brent –Dubai, West Texas Intermediate-Brent Calendar and Dated Brent Crude Oil. Buyers or Sellers?
How can you tell whether the crude oil market is a byuers or sellers market?
Take a look at the futures contract prices for delivery in the current month and then for the following months.
If the prices are rising over the period, that is an upward sloping curve, then this is a buyers market. Here the commodity price is said to be in contango, and you pay more for a contract further out.
So, for example, at the time of writing with crude oil prices having hitting all-time highs around the $121 mark, we see the futures contract price for June delivery at $119.97.
Moving to July 2008 crude we see $119.47, August 2008 crude comes in at $118.84, September 2008 at £118.26 and October 2008 crude at $117.73.
Just considere that crude oil prices have risen about 400% since 2001.
This is a sellers market as the immediate price is higher than the longer term price, five or six months out. Such a downward sloping demand curve is called backwardation, and we contrast this with, for example, the current upward slope for natural gas demand, which is in contango. Remember that various political, economic or environmental factors can change which will lead to a reversal of the curve and a move back to backwardtion for the crude oil price.
With the big question over the level of global crude oil reserves never far away, and the arguments for Peak Oil ever present, this vital commodity - engine of the world economy - will remain at the top of the agenda for governments, corporations and investors alike. Trading oil futures is one way of getting exposure to this hugely fascinating component of the commodity universe. And with the position of the US dollar under scrutiny, we can expect crude prices to act as a barometer of that currency’s strength going forward.
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