Crude oil futures are 1,000 barrels per contract and are traded every month from 6:00 p.m. ET to 5:00 p.m. ET. Schwab, on the other hand, allows you to trade more than simply NYMEX crude oil futures online. Brent crude oil futures are also available, as well as E-mini crude oil futures, which are half the size of a typical futures contract. E-mini crude futures are traded only on the Globex platform of the Chicago Mercantile Exchange nearly 24 hours a day.
What is the duration of an oil futures contract?
You’re not going to the store and buying a couple thousand 55-gallon barrels of crude oil to store in your backyard, are you? That’s just not feasible.
Crude oil futures contracts were created to allow oil corporations and companies that consume a lot of oil to plan delivery of the commodity at a set price and date. Today, these contracts are also traded between speculators who expect to profit from the commodity’s volatility.
On the futures market, these derivatives are a hot commodity, with the potential to yield large gains in a short period of time. Unfortunately, when bad decisions are made, the consequences can be just as severe.
The majority of oil futures contracts include the purchase and sale of 1,000 barrels of crude oil. When a contract is purchased, it stipulates that these barrels of oil will be delivered at a certain date (up to nine years away) and for a predetermined price at a predetermined date (or expiration date).
Let’s imagine you bought an oil futures contract today with a three-month expiration date; you’d be owed 1,000 barrels of oil three months from now, but you’d pay today’s price let’s say $50 per barrel as an example.
You notice that the price of oil has climbed to $51 per barrel in 30 days, indicating that your futures contract is now worth $1,000 more than you paid. If the price of oil fell to $49 per barrel, on the other hand, you would have lost $1,000.
In either case, you’ll want to sell as soon as possible when the contract expires. Individual investors and price speculators who aren’t large-scale crude oil users typically close off futures contracts well before they expire.
- You’re probably not going to be able to store 1,000 barrels of oil. You probably don’t have enough room to store 55,000 gallons of oil. If you own the contract when it expires, you’ll have to decide where to store the oil and what to do with it. Your entire investment is gone if you opt not to take ownership.
- Futures contracts lose value as they get closer to expiration. The futures market operates at a breakneck speed, with the thrill being in forecasting what will happen in a week rather than when the contract will expire. The premium paid for future value growth decreases as the contract approaches its expiration date. As a result, holding these contracts for too long will limit your prospective gains.
Pro tip: If you want to invest in oil futures, you should open an account with a broker who specializes in future contracts. When you open an account with TradeStation, you can get a $5,000 registration bonus.
How are oil futures prices determined?
When the current price of WTI futures is $54, the contract’s current value is calculated by multiplying the current price of a barrel of oil by the contract’s size. The current value in this case would be $54 x 1000 = $54,000.
What is a futures contract for crude oil?
Crude oil futures are contracts in which buyers and sellers of crude oil coordinate and agree to deliver certain volumes of physical crude oil at a future date. The benchmark crude oil futures contract in the United States is for West Texas Intermediate, a type of oil with a low density and sulfur content that makes it relatively easy to refine. Many traders refer to the contracts as NYMEX WTI crude oil futures since they have historically traded on the New York Mercantile Exchange. Brent crude oil futures, which feature a different grade of oil found in the North Sea off the European mainland, are also widely traded around the world.
The specifications for crude oil futures contracts are specified in such a way that they can be traded evenly by market participants. Each contract includes 1,000 barrels, with delivery dates ranging from three to nine years in the future. The seller must deliver the oil to the buyer at a pipeline or storage facility in the energy hub of Cushing, Oklahoma, at some point during the delivery month, with a legal transfer of title accompanying the actual physical transportation of oil.
What is the value of an oil futures contract?
Crude oil futures contracts have a 0.01 per barrel specification and are worth $10.00 per contract. Sunday through Friday, electronic trading of crude oil futures is performed on the CME Globex trading platform from 6:00 p.m. U.S. to 5:00 p.m. U.S. ET.
How do I go about purchasing a barrel of crude oil?
You can invest in oil commodities in a variety of ways. Oil can also be purchased by the barrel.
Crude oil is traded as light sweet crude oil futures contracts on the New York Mercantile Exchange and other commodities markets across the world. Futures contracts are agreements to provide a specific quantity of a commodity at a specific price and on a specific date in the future.
Oil options are a different way to purchase oil. The buyer or seller of options contracts has the option to swap oil at a later period. You’ll need to trade futures or options on oil on a commodities market if you want to acquire them directly.
The most frequent approach for the average person to invest in oil is to purchase oil ETF shares.
Finally, indirectly investing in oil through the ownership of several oil firms is an option.
Trading Oil Options
Oil Options are contracts that give the contract holder the option to buy oil at a predetermined price at a later date. Because it is not a promise to buy, it varies from a futures contract.
The gasoline refinery, for example, has signed an options contract for 100,000 barrels of oil at $50 a barrel, with delivery set for the end of next month. On the condition that the refinery pay an advance charge to generate the contract, the oil producer agrees to this requirement. The refinery must now factor in that their cost will be the price per barrel plus the cost of the contract.
The refinery can choose to execute the option for $50 per barrel before the contract expires, or it can try to obtain a higher price on the open market. If a better price becomes available, it will let the option lapse, losing the premium but saving money by purchasing the commodity at a lower price elsewhere.
Oil Options traders are interested on the price of the Option contract rather than the price of the commodity. If a refinery’s option to purchase oil at $50 per barrel is exercised, but the spot price per barrel has risen to $55 per barrel, the refinery will save $500,000 if the option is exercised. This raises the contract’s overall worth.
If the spot price of oil falls to $45 per barrel, on the other hand, the option to buy at $50 makes no sense, and the contract’s value is voided.
The advantage of trading Oil Options CFDs with Plus500 is that you may trade on the movement of the commodity without having to establish a position on its value. Instead, you’re betting on the value of the Options Contract, which you can do at a lesser cost and with more leverage.
Aside from the price of the underlying assets, a variety of additional factors influence the value of Options and, by extension, Options CFDs. Traders of options, on the other hand, should always be conscious of their positions because options are highly volatile instruments with large price swings.
Traders who trade CFDs on Oil Futures and Options have a wide range of options for speculating on this and other popular commodities. Options are advised for experienced traders who are willing to trade on extremely volatile instruments that might increase and fall without warning due to their high risk. In our Trader’s Guide, you can discover more about how these function.
A barrel holds how many gallons?
A normal barrel of crude oil in the United States comprises 42 gallons of crude oil, which creates approximately 44 gallons of petroleum products. Refinery gains result in an additional 6% of product, resulting in an additional 2 gallons of petroleum products. Refineries in the United States create about 19 gallons of gasoline and 10 gallons of diesel fuel from a barrel of crude oil, as seen in the graph below. The remaining one-third is made up of items like jet fuel and heating oil.
What is the purpose of futures contracts?
A futures contract is a legally enforceable agreement to acquire or sell a standardized asset at a defined price at a future date. Futures contracts are exchanged electronically on exchanges like the CME Group, which is the world’s largest futures exchange.
When futures contracts expire, what happens?
Upon expiration, many financial futures contracts, such as the popular E-mini contracts, are cash settled. This means that the contract’s value is marked to market on the last day of trading, and the trader’s account is debited or credited based on whether the trader made a profit or loss. To preserve the same market exposure, large traders typically roll their bets before to expiration. During these rollover periods, some traders may try to profit on pricing abnormalities.