What does crude oil futures mean
View more search results. Find out more. Oil is a hugely popular commodity among traders. With supply and demand constantly in flux, volatility is never far away — and liquidity is rarely hard to find.
Explainer: What is a negative crude future and does it mean anything for consumers?
Energy prices are important for everyone, and the plunge in crude oil prices in showed just how important changes in the values of key commodities can be for consumers and investors alike. But for investors, there's more to consider than the price of oil today. Crude oil futures offer you an opportunity to profit from fluctuations in the price of a barrel of WTI or Brent crude, but they work a lot differently from just buying oil and gas company stocks.
Below, you'll learn the basics of crude oil futures, and the impact that they can have on your portfolio. Image source: Getty Images. Crude oil futures are futures contracts in which buyers and sellers of oil coordinate and agree to deliver specific amounts of physical crude oil on a given date in the future. The benchmark futures contract for crude oil in the U. Trading is also common globally for what are called Brent crude oil futures, which involve a different grade of oil found in the North Sea off the European continent.
The specifications for crude oil futures contracts are set in a way that allow market participants to trade them uniformly. Each contract covers 1, barrels, and dates for delivery are available up to nine years into the future. At some point during the delivery month, the seller must deliver the oil to the buyer at a pipeline or storage facility in the energy hub of Cushing, Oklahoma, with official transfer of title accompanying the actual physical movement of oil.
As you can see, the primary purpose of crude oil futures is to connect producers of oil with consumers of oil. Oil producers can sell futures contracts that match up to their expected future production, and by doing so, they can effectively lock in current prices.
Although futures contract prices change every day, a seller receives financial credit when futures prices go down, offsetting the drop in oil's market price.
Buyers who need crude oil as a raw material, on the other hand, such as refinery companies, can ensure they have adequate future supplies and lock in favorable pricing.
For buyers, the finances of futures work in the opposite direction. Rising prices give them a financial credit, while falling prices cost them. The net effect, though, is to set the price actually paid for the oil at the level at which the buyer entered into the futures contract in the first place. Investors generally aren't interested in taking possession of thousands of barrels of crude oil. Many traders participate in futures markets without ever dealing with actual physical delivery.
As long as you close out your futures position before the expiration date of the contract, then you can experience the same financial gains and losses as other participants from the daily movements of futures prices. In order to trade futures, however, you have to set up a margin account with a broker that handles futures trading.
In order to cover potential losses, you also have to maintain a certain amount of equity in the account. If losses push the available capital in your margin account below that level, then you'll have to deposit more money in order to keep your futures position. Even if you never trade in futures yourself, keep in mind that any energy companies in which you invest likely use futures for their own account. Therefore, understanding how crude oil futures work can give you a lot of insight into how companies' share prices should react to changing oil prices.
For instance, a producer that has already sold futures on most of its future production shouldn't react much when oil prices change. Those that don't participate in the futures markets, however, are largely unhedged and can see a lot of volatility when oil prices move sharply. Crude oil futures are an integral part of how the energy industry operates. 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.
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Crude is the raw material that is refined to produce gasoline, heating oil, diesel, jet fuel, and many other petrochemicals. It comes in many different grades, and the. The price plunge was partly due to the way oil is traded. A futures contract is for 1, barrels of crude, delivered into Cushing, where energy.
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This article is the first in a series where we will be exploring the most common strategies used by oil and gas producers to hedge their exposure to crude oil, natural gas and NGL prices.
Reuters - The price of a barrel of benchmark U. On Monday, it looked like this:.
Crude Oil Futures Trading 101 – What Are They and Should You Invest in Them?
This year's surge in the price of crude oil is hitting consumers across the world, helping to drive global inflation and is now racing up the political agenda as we use up more and more of the world's limited supplies. Harry Tchilinguirian, a senior oil analyst at investment bank BNP Paribas in London, explains how oil is traded, who buys oil, why the oil price is spiking and how high oil may go. Futures contracts are financial instruments and carry with them legally binding obligations. Buyer and seller have the obligation to take or make delivery of an underlying instrument at a specified settlement date in the future. Oil futures are part of the derivatives family of financial products as their value 'derives' from the underlying instrument. These contracts are standardised in terms of quality, quantity and settlement dates.
Explained: Why WTI crude oil futures fell a mind-boggling 300% to -$37
Energy prices are important for everyone, and the plunge in crude oil prices in showed just how important changes in the values of key commodities can be for consumers and investors alike. But for investors, there's more to consider than the price of oil today. Crude oil futures offer you an opportunity to profit from fluctuations in the price of a barrel of WTI or Brent crude, but they work a lot differently from just buying oil and gas company stocks. Below, you'll learn the basics of crude oil futures, and the impact that they can have on your portfolio. Image source: Getty Images. Crude oil futures are futures contracts in which buyers and sellers of oil coordinate and agree to deliver specific amounts of physical crude oil on a given date in the future. The benchmark futures contract for crude oil in the U. Trading is also common globally for what are called Brent crude oil futures, which involve a different grade of oil found in the North Sea off the European continent. The specifications for crude oil futures contracts are set in a way that allow market participants to trade them uniformly.
Crude oil is one of the most actively traded commodities in the world, and its price affects the price of many other commodities, including gasoline and natural gas. Oil prices fluctuate on the faintest whisper of news regarding pricing, which makes it a favorite of swing and day traders looking for an edge.
Oil did something Monday that made even market veterans shake their heads in wonder — the thinly traded, soon-to-expire May contract for West Texas Intermediate crude on the New York Mercantile Exchange traded, and closed, in negative territory. Negative prices means someone with a long position in oil would have to pay someone to take that oil off of their hands. Why would they do that?
Why oil prices just crashed into negative territory — 4 things investors need to know
WTI West Texas Intermediate, a US light sweet crude oil blend futures provide direct crude oil exposure and are the most efficient way to trade oil after a sharp rise in US crude oil production. Buy Historical Data. Buy Real Time Quotes. Understanding Price Limits and Circuit Breakers. Read Report. Energy cmegroup. CME Group is the world's leading and most diverse derivatives marketplace. Markets Home. Active trader. Hear from active traders about their experience adding CME Group futures and options on futures to their portfolio. Find a broker. Get quick access to tools and premium content, or customize a portfolio and set alerts to follow the market. Market Data Home. Real-time market data. E-quotes application.
Oil price Q&A: What are oil futures and how are they traded?
A type of fossil fuel, crude oil can be refined to produce usable products such as gasoline, diesel, and various other forms of petrochemicals. It is a nonrenewable resource , which means that it can't be replaced naturally at the rate we consume it and is, therefore, a limited resource. Crude oil is typically obtained through drilling, where it is usually found alongside other resources, such as natural gas which is lighter and therefore sits above the crude oil and saline water which is denser and sinks below. It is then refined and processed into a variety of forms, such as gasoline, kerosene, and asphalt, and sold to consumers. Although it is often called "black gold," crude oil has ranging viscosity and can vary in color from black to yellow depending on its hydrocarbon composition. Distillation, the process by which oil is heated and separated in different components, is the first stage in refining.
