How to Buy Crude Futures
Crude oil is one of the most actively traded commodities and a precursor to thousands of other in-demand products, such as gasoline, diesel fuel, jet fuel and heating oil.
Buying crude oil can be a risky proposition. Investing in crude oil futures can be a way of mitigating the risks of owning oil while harnessing the leverage of futures. Crude oil futures are sold on exchanges all over the world, including The New York Mercantile Exchange (NYMEX) and Intercontinental Exchange (ICE).
Light sweet crude (WTI) is considered a pricing benchmark for the crude oil industry.
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Types of Crude
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Crude oil comes in many varieties and is categorized according to density and viscosity (light, heavy), sulphur content (sweet, sour) and source. Light sweet crude is a favored product for its low sulphur content and relatively minimal processing.
Inside a Crude Futures Contract
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When you buy a crude futures contract, in effect you control 1,000 barrels (or 42,000 gallons) of crude oil. Thus, price fluctuations could affect your contract such that a move from an initial price of $80 (equal to $80,000 worth of crude oil) to an exit price of $75 results in a contract value loss of $5,000 (calculated as the difference in cents x $10, where a 1 cent move = $10).
While provisions are made for physical delivery, most futures are offset before this takes place.
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Future of Crude
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As alternatives to fossil fuels become increasingly available, they have the potential to jeopardize the predominance of crude oil, and hence, crude prices.
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