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.
There are futures markets for a number of instruments ranging across currencies, bonds, equities, interest rates and commodities.
In the case of crude oil, the main futures exchanges are the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE) where West Texas Intermediate (WTI) and North Sea Brent crude oil are traded respectively.
These exchanges trade what is referred to as ‘light- sweet’ crude oil and a single contract, or ‘lot’, calls for the purchase or sale of 1,000 barrels of oil. Traders can buy and sell oil for delivery several months or years ahead.
The bulk of activity in commodity futures markets is typically concentrated on oil for delivery in the next three months. However, in the past five years, activity has increased substantially for deliveries much further into the future as more investors put money into commodity indices.
Crude Oil Futures Exchanges
Crude Oil futures is mainly traded at New York Mercantile Exchange (NYMEX) and Tokyo Commodity Exchange (TOCOM).
NYMEX Light Sweet Crude Oil futures prices are quoted in dollars and cents per barrel and are traded in lot sizes of 1000 barrels (42000 gallons).
NYMEX Brent Crude Oil futures are traded in units of 1000 barrels (42000 gallons) and contract prices are quoted in dollars and cents per barrel.
TOCOM Crude Oil futures prices are quoted in yen per kiloliter and are traded in lot sizes of 50 kiloliters (13210 gallons).
|Exchange & Product Name||Symbol||Contract Size||Initial Margin|
|NYMEX Light Sweet Crude Oil Futures||CL||1000 barrels||USD 9,113 (approx. 23%)|
|NYMEX Brent Crude Oil Futures||BZ||1000 barrels||USD 12,825 (approx. 29%)|
|TOCOM Crude Oil Futures||50 kiloliters||JPY 210,000 (approx. 17%)|