NYMEX Crude Oil Futures

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About Crude Oil Futures

What is Crude Oil Futures?

Crude Oil futures are standardized, exchange-traded contracts. In which the contract buyer agrees to take delivery, from the seller, a specific amount of crude oil (eg. 1000 barrels) at a determined price on a future delivery date.

Contract Unit 1,000 barrels
Price Quotation U.S. Dollars and Cents per Barrel
Minimum Price Fluctuation $0.01 per Barrel
Product Code CME Globex: CL CME ClearPort: CL Clearing: CL TAS: CLT TAM: CLS
Settlement Method Deliverable

How to invest using Crude Oil Futures?

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Crude oil futures are futures contracts in which consumers and traders of oil organize and agree to deliver specific quantities of physical crude oil on a specified date in the future. The benchmark futures contract for crude oil in the U.S. involves West Texas Intermediate, a particular grade of oil that has fairly low density and sulfur content that makes it relatively easy to refine. It has historically traded on the New York Mercantile Exchange, and therefore many traders refer to the contracts as NYMEX WTI crude oil futures.

While every day futures contract prices change, a seller obtains financial credit when futures prices go down, offsetting the drop in oil’s market price. For instance, if a contract falls from $60 per barrel to $59, then the seller will get a $1,000 credit, corresponding to the $1 decline multiplied by the 1,000 barrels covered by the contract. Conversely, if the contract rises from $60 to $61, the seller takes a $1,000 loss, offsetting the eventual gain the seller will get in future by having a higher price.

Crude Oil Futures are an integral part of how the energy industry works. The futures markets can be a risky place for individual investors, but energy companies that use futures well can often boost their profits or avoid losses that their peers end up suffering.

Why Trade NYMEX WTI Futures?

Crude oil markets offer opportunities in nearly all market conditions but can be highly volatile. Several factors impact prices, directly (pipeline changes) or on a macroeconomic level (i.e., economic health, weather), making price risk management is critical.  NYMEX WTI futures deal direct exposure to the oil market. A key advantage over other ways to trade, whether you’re looking to hedge risk or speculate on where oil prices are headed. There are Nearly 1.2 million contracts traded daily, with 2 million+ in open interest.

WTI is the go-to measure of world’s oil prices due to the rise in U.S. production, Asian usage and liftoff of U.S. export ban. It Controls a large contract value with a small amount of capital. Used properly, it’s a powerful way to increase capital efficiency and exposure.

NYMEX WTI is closely connected to the spot market, reducing costs. Trade with other NYMEX oil contracts for significant savings and precise exposure. Trade using the CLOB, blocks, cleared-only transactions and EFRPs. Spread NYMEX WTI with other liquid NYMEX energy benchmarks to easily capture essential price relationships. And also get cross-margin savings, operational efficiencies, and lower costs.

Crude Oil Facts

Crude Oil is unrefined oil that is acquired directly from the ground. It is also a fossil fuel that was made from the remains of decaying plants and aquatic animals in ancient seas. It wasn’t until the invention of the kerosene lamp that the demand for oil emerged. Crude oil futures represent the consummate commodity, as it is the most traded on the markets today. They are also the biggest contracts of a commodity in terms of volume. These crudes are favored because they can produce valuables, such as gas and diesel, due to low sulfur content.

It is the raw material that is refined to produce gasoline, heating oil, diesel, jet fuel, and many other petrochemicals. The fundamentals are different since it is a raw product.

When crude oil is refined or treated, it takes about three barrels of oil to produce two barrels of unleaded gas and one barrel of heating oil. This helps to put into perspective the production needs of crude, and why production/supply levels are watched so closely.

The top producers of crude oil are Russia, Saudi Arabia, and the U.S. Even though the U.S. yields a substantial amount of crude oil, it must depend on imports in order to fulfill its energy demand. All the oil producing countries combined produce almost 75 million barrels of oil a day. Around 650 million barrels of oil have already been produced, but over a trillion barrels in reserves can still be produced as well. Cushing, Oklahoma is the delivery point of crude oil.

When to Invest in Crude Oil Futures?

Many investors want to take advantage of oil futures but are hesitant to make the plunge. Hesitation is dangerous in this market. If you are serious about investing in oil futures, you need to understand that almost 100% of the game is timing.

First, make sure you understand the trading hours that are best suited for purchasing oil futures, which are generally between 9 am and 12 pm EST. This is the busiest and most liquid time of the day for traders with the smallest bid-ask spreads. Secondly, get an idea of when the price of oil is likely to increase. Here are some things you should think about before you invest in oil:

  • Learn What Moves Crude Oil
  • Spending in exchange-traded funds that seek to track the price of crude oil.
  • Crude oil changes through insights of supply and demand, affected by global output, as well as global economic prosperity.
  • Capitalizing in crude oil futures contracts that give you the right to take future possession of the physical commodity.
  • Watch for oil production cuts or increases from OPEC (Organization of Petroleum Exporting Countries), which determines global supply and demand for crude.
  • Trading in energy companies that explore for, produce, transport, refine, or sell crude oil.

Benefits of Trading NYMEX WTI Futures

Diversify Your Investment Portfolio: Adding oil commodities to an equities-only or fixed-income portfolio can lower the overall volatility because there is non-correlation between these asset classes.

Liquidity: Crude Oil futures are one of the most liquid ventures due to the high volume that is exchanged every day. Actually, they are the most effectively exchanged future available and henceforth the most fluid.

Global benchmark: WTI is the go-to measure of the world’s oil prices due to the rise in U.S. production, Asian usage and liftoff of U.S. export ban.

Speculating On Oil Prices: There are frequently wild swings in commodities costs; putting resources into oil futures and subordinates is an approach to benefit rapidly from development in oil costs, which are famously unstable. It’s not incomprehensible at costs to move 5% or 10% in a solitary exchanging session.

Limited supply: Oil is an essential asset. The way that there is a limited supply is discouraging for a great many people, however it can work to the benefit of financial specialists who put resources into its fates. Different items prospects, for example, corn and livestock can be supplanted and their costs can be balanced out. Be that as it may, as the world’s oil supply is depleted, the cost of oil will unavoidably increment.