Light Sweet Crude Oil Futures Contracts

Ok guys here comes a dumb question...

I've been reading up on oil futures contracts and I'm trying to find out exactly what you are entitled to when you buy one contract?

The price for say June futures 07 (CLM06[30]) is 64.76 USD approx, so what does that entitle me to? I've read that one contract is worth 1000 barrels? but how does that work if I am only paying 64 and a half USD for it? Or is it 64.50 USD for a gallon of oil? Or is it just one barrel for that price?

serp said:

Ok guys here comes a dumb question...

I've been reading up on oil futures contracts and I'm trying to find out exactly what you are entitled to when you buy one contract?

The price for say June futures 07 (CLM06[30]) is 64.76 USD approx, so what does that entitle me to? I've read that one contract is worth 1000 barrels? but how does that work if I am only paying 64 and a half USD for it? Or is it 64.50 USD for a gallon of oil? Or is it just one barrel for that price?

Click to expand...

Serp,

Yes the the contract is for 1000 bbl but the price is quoted in dollars per barrel. Simple maths says that you are entering a contract with the value of $64,760.00USD

However, as you are not buying that physical oil (unless you let the contract expire on you) you are merely entering into a contract. Hence the reason for "margin" which is essentially a performance bond.

* NYMEX Crude Oil http://www.nymex.com/CL_spec.aspx

* NYMEX/COMEX Margins http://www.nymex.com/ewd_margins.aspx

There is also a smaller contract which is for 500 bbl

* NYMEX Crude Oil miNY http://www.nymex.com/QM_spec.aspx

And to add to Wayne's comments, if you do buy 1 contract, every $1 it moves is equal to US$1000. So if you buy at $72 and sell at $73 you make US$1000 profit.

You need to be careful because there are many listed montsh to trade. You should always trade the "spot" month which is the current "popular" month for lack of a better word. Any other months may be illiquid. The current spot month is June06 which is trading at $71.88 so you may wish to check your prices. CLM06 is June 2006, where CL is Light Crude, M is June, and 06 is 2006.

My best trade was buying at $11.00 in 2000 or so. My worst...selling at $19.00

Nick,

I have a couple of questions if you don't mind. (Not about oil particularly particularly)

1/Is there a handy resource where on can find out when the notice period starts for physical settlement futures. ( My current broker does not notify)

2/Why does the open interest drop off so sharply so early in cash settled contracts such as Lean Hogs ...as if there is a notice period?

Cheers

Thanks for the answers guys, I ended up figuring it out myself last night anyway!

I was reading a case study about how massive transport companies might hedge against rising oil prices and FX, I was understanding the principles of it all alright, but I couldn't figure out how the contracts work! But now I understand so it is all cool.

Thanks again.

Wayne,
There is no company that I am aware of that does it. I know Macquarie has the facility to do it, but they don't pass onto clients. The way I do it is to simply watch the open interest summary. I use CSI data that has a great summary page of contracts and when the open interest switches you roll. I've only ever been caught twice in my career - last time was actually in Crude in early 2001!

I don't have a specific answer for Hogs although being such an illiquid contract it may be because a few larger players have reason to roll and their activity is enough to impact the OI. I know some US funds use a specific date rather than the formal Notice Day to roll as well, although I highly doubt the larger funds would be playing Hogs. They tend to stick to the financials and currencies nowadays.

Most cash settled contracts, especially the indices, roll the day prior.

Nick