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Crude Oil Future Trading Market Prices




Crude oil prices measure the spot price of various barrels of oil, most commonly either the West Texas Intermediate or the Brent Blend. The OPEC basket price and the NMEX Futures price are also sometimes quoted.

West Texas Intermediate (WTI) crude oil is of very high quality, because it is light-weight and has low sulphur content. For these reasons, it is often referred to as “light, sweet” crude oil. These properties make it excellent for making gasoline, which is why it is the major benchmark of crude oil in the Americas. WTI is generally priced at about a $5-6 per barrel premium to the OPEC Basket Price and about $1-2 per-barrel premium to Brent.

Brent Blend is a combination of crude oil from 15 different oil fields in the North Sea. It is less “light” and “sweet” than WTI, but still excellent for making gasoline. It is primarily refined in Northwest Europe, and is the major benchmark for other crude oils in Europe or Africa. For example, prices for other crude oils in these two continents are often priced as a differential to Brent, i.e., Brent minus $0.50. Brent blend is generally priced at about a $4 per barrel premium to the OPEC Basket price or about a $1-2 per barrel discount to WTI.

The OPEC Basket Price is an average of the prices of oil from Algeria, Indonesia, Nigeria, Saudi Arabia, Dubai, Venezuela, and Mexico. OPEC uses the price of this basket to monitor world oil market conditions. OPEC prices are lower because the oil from some of the countries have higher sulphur content, making them more “sour”, and therefore less useful for making gasoline. The NYMEX futures price for crude oil is reported in almost every major U.S. newspaper.

It is the value of a 1,000 barrels of oil, usually WTI at some agreed upon time in the future. In this way, the NYMEX gives a forecast of what oil traders think the WTI spot price will be in the future. However, the futures price usually follows the spot price pretty closely, since the oil traders can’t know about sudden disruptions to the oil supply, etc.

How Crude Oil Prices Affect the U.S. Economy:
Higher crude oil prices directly affect the cost of gasoline, home heating oil, manufacturing and electric power generation. How much? According to the EIA, 96% of transportation relies on oil, 43% of industrial product, 21% of residential and commercial, and (only) 3% of electric power. However, if oil prices rise, then so does the price of natural gas, which is used to fuel 14% of electric power generation, 73% of residential and commercial, and 39% of industrial production.

Light Sweet Crude Oil is traded on the New York Mercantile Exchange(NYMEX). “Light Sweet” is the most popular grade of crude oil that is traded. Another grade of oil is Brent Crude, which is primarily traded in London.

Crude oil is the raw material that is refined to produce gasoline, heating oil, diesel, jet fuel and many other petrochemicals.

Russia, Saudi Arabia, and the United States are the world’s three largest oil producers.

When crude oil is refined, or processed, it takes about 3 barrels of oil to produce 2 barrels of unleaded gas and 1 barrel of heating oil.

Consumers and producers of crude oil can manage crude oil price risk by purchasing and selling crude oil futures. Crude Oil producers can employ a short hedge to lock in a selling price for the crude oil they produce while businesses that require crude oil can utilize a long hedge to secure a purchase price for the commodity they need.

Crude Oil futures are also traded by speculators who assume the price risk that hedgers try to avoid in return for a chance to profit from favorable crude oil price movement. Speculators buy crude oil futures when they believe that crude oil prices will go up. Conversely, they will sell crude oil futures when they think that crude oil prices will fall.

How to Start Trading Crude Oil Futures

To buy or sell crude oil futures, you need to open a trading account with a broker that handles futures trades. Most online brokerages out there only deal with stocks and stock options. Only a few such as optionsXpress lets you trade futures and futures options as well. optionsXpress also provide a virtual trading platform where beginners can try out futures and options trading in real market conditions without using real money.

crude-oil-future-prices

NYMEX West Texas Intermediate Crude Oil for April delivery closed up $1.49 at $79.66 per barrel. Crude oil began futures trading on the NYMEX in 1983 and is the most heavily traded commodity.

Trading unit: Crude Oil Futures trade in units of 1,000 U.S. barrels (42,000 gallons). Options: One NYMEX Division light, sweet crude oil futures contract.

Trading Months: Crude Oil Futures trade 30 consecutive months plus long-dated futures initially listed 36, 48, 60, 72, and 84 months prior to delivery. Additionally, trading can be executed at an average differential to the previous day’s settlement prices for periods of two to 30 consecutive months in a single transaction. These calendar strips are executed during open outcry trading hours. Options: 12 consecutive months, plus three long-dated options at 18, 24, and 36 months out on a June/December cycle.

Price Quotation
Crude Oil Futures are quoted in dollars and cents per barrel.

Minimum Price Fluctuation: $0.01 (1¢) per barrel ($10 per contract).

Maximum Daily Price Fluctuation
Futures: Initial limits of $3.00 per barrel are in place in all but the first two months and rise to $6.00 per barrel if the previous day’s settlement price in any back month is at the $3.00 limit. In the event of a $7.50 per barrel move in either of the first two contract months, limits on all months become $7.50 per barrel from the limit in place in the direction of the move following a one-hour trading halt.

Options: No price limits.

Last Trading Day
Crude Oil Futures: Trading terminates at the close of business on the third business day prior to the 25th calendar day of the month preceding the delivery month. If the 25th calendar day of the month is a non-business day, trading shall cease on the third business day prior to the last business day preceding the 25th calendar day.
Options: Trading ends three business days before the underlying futures contract.

Delivery
F.O.B. seller’s facility, Cushing, Oklahoma, at any pipeline or storage facility with pipeline access to TEPPCO, Cushing storage, or Equilon Pipeline Co., by in-tank transfer, in-line transfer, book-out, or inter-facility transfer (pumpover).

Delivery Period
All deliveries are rateable over the course of the month and must be initiated on or after the first calendar day and completed by the last calendar day of the delivery month.

Alternate Delivery Procedure (ADP)
An Alternate Delivery Procedure is available to buyers and sellers who have been matched by the Exchange subsequent to the termination of trading in the spot month contract. If buyer and seller agree to consummate delivery under terms different from those prescribed in the contract specifications, they may proceed on that basis after submitting a notice of their intention to the Exchange.

Exchange of Futures for, or in Connection with, Physicals (EFP)
The commercial buyer or seller may exchange a futures position for a physical position of equal quantity by submitting a notice to the Exchange. EFPs may be used to either initiate or liquidate a futures position.

Deliverable Grades
Specific domestic crudes with 0.42% sulfur by weight or less, not less than 37° API gravity nor more than 42° API gravity. The following domestic crude streams are deliverable: West Texas Intermediate, Low Sweet Mix, New Mexican Sweet, North Texas Sweet, Oklahoma Sweet, South Texas Sweet.

Specific foreign crudes of not less than 34° API nor more than 42° API. The following foreign streams are deliverable: U.K. Brent and Forties, and Norwegian Oseberg Blend, for which the seller shall receive a 30¢-per-barrel discount below the final settlement price; Nigerian Bonny Light and Colombian Cusiana are delivered at 15¢ premiums; and Nigerian Qua Iboe is delivered at a 5¢ premium.

Inspection
Inspection shall be conducted in accordance with pipeline practices. A buyer or seller may appoint an inspector to inspect the quality of oil delivered. However, the buyer or seller who requests the inspection will bear its costs and will notify the other party of the transaction that the inspection will occur.

Position Limits
Any one month/all months: 20,000 net futures, but not to exceed 1,000 in the last three days of trading in the spot month.

Margin Requirements
Margins are required for open futures or short options positions. The margin requirement for an options purchaser will never exceed the premium.

Trading Symbol
Futures: CL
Options: LO

update: According to Bloomberg news, this past U.S. winter was the coldest in nine years (as of Feb. 22) and also ranked in the coldest one-third of all winters in the past 115 years. That was a sharp contrast to the previous two mild U.S. winters. Distillate supplies are up 4% from a year ago and demand for distillates over the past four weeks was up 12.5% from a year ago. As of June 11th, heating oil supplies were up 10% from a year ago. On June 8, 2010, the DOE estimated that wholesale heating oil prices will average $2.10 in 2010.
Crude oil prices have been pressured by concerns about Europe’s debt problems. It is hard to say how long those problems will persist, but so far, prices are under pressure below $80. Key statistic in the crude oil market is world surplus production capacity and that was only 1.5 million barrels per day (mbd) in 2008 – most of it in Saudi Arabia. On June 8, 2010, the U.S. Energy Department said that surplus capacity was 5.2 million barrels per day in May – a far more comfortable margin.
On June 8, 2010, the DOE estimated OPEC’s actual production at 29.3 mbd in May with 2.35 mbd coming from Iraq. The DOE also estimated that world consumption will total 85.5 mbd in 2010. West Texas crude oil prices are expected to average $78.75 in 2010 and $82.50 in 2011. On June 11th, U.S. crude oil stocks were up 2% from a year ago.

crude-oil-prices-chart

2010
6-9 – OPEC: World oil demand est. at 85.37 mbd in 2010.
6-8 – DOE: World oil demand est. at 85.5 mbd in 2010 and 87.1 mbd in 2011.
5-11 – DOE: World oil demand est. at 85.6 mbd in 2010 and 87.2 mbd in 2011.
5-11 – OPEC: World oil demand est. at 85.38 mbd in 2010.
4-14 – OPEC: World oil demand est. at 85.21 mbd in 2010.
4-6 – DOE: World oil demand est. at 85.5 mbd in 2010.
3-10 – OPEC: World oil demand est. at 85.24 mbd in 2010.
3-9 – DOE: World oil demand est. at 85.5 mbd in 2010.
2-10 – DOE: World oil demand est. at 85.3 mbd in 2010.
2-10 – OPEC: World oil demand est. at 85.12 mbd in 2010.
1-19 – OPEC: World oil demand est. at 85.15 mbd in 2010.
1-15 – IEA: World oil demand est. at 86.3 mbd in 2010.
1-12 – DOE: World oil demand est. at 85.2 mbd in 2010.
2009
12-30 – DOE: Crude oil supplies at 326 mb.
12-15 – OPEC: World oil demand est. at 84.3 mbd in 2009 and 85.1 mbd in 2010.
12-12 – Iraq’s Oil Minister: Production capacity could reach 12 mbd in six years.
12-8 – DOE: World oil demand estimated at 84.1 mbd in 2009 and 85.2 mbd in 2010.
11-11 – OPEC: World oil demand est. at 84.3 mbd in 2009 and 85.1 mbd in 2010.
11-10 – DOE: World oil demand estimated at 84.1 mbd in 2009 and 85.4 mbd in 2010.
10-13 – OPEC: World oil demand est. at 84.2 mbd in 2009 and 84.9 mbd in 2010.
10-6 – DOE: World oil demand estimated at 83.7 mbd in 2009 and 84.8 mbd in 2010.
9-28 – Iran test fired Shahab-3 missiles with a 2,000 kilometer range, capable of reaching Israel and other targets around the Middle East. This adds to the tensions created by Friday’s disclosure that they have a second nuclear facility near Qom.
9-24 – IHS Cambridge Energy Research Associates: The oil industry discovered 10 billion barrels of new oil reserves in the first half of 2009 and is on track for their best year since 2000.
9-15 – OPEC: World oil demand est. at 84.1 mbd in 2009 and 84.6 mbd in 2010.
9-10 – DOE: Crude supplies down 5.9 mb to 337.5 mb.
9-10 – DOE: 165.6 million barrels of distillate inventories is the most since 1983.
9-9 – DOE: World oil demand estimated at 83.7 mbd in 2009 and 84.6 mbd in 2010.

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