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You may have often heard that crude is the new gold, but unlike gold, it has much more impact on the other commodities; no doubt, it is one of the most traded commodities globally. The price of crude oil affects the prices of different commodity products, such as natural gas and gasoline. However, that’s not because oil prices significantly affect bonds, stocks, and forex traded worldwide.
What are oil futures?
Oil futures represent contracts in which you agree to buy or sell oil at a predetermined price on a predetermined date. Usually, a futures contract specifies the earliest delivery date. For gasoline, heating oil, and propane, each contract expires on the last business day of the month.
By trading oil futures, you can trade rising prices and falling prices.
How do you buy oil futures?
It would help if you traded on a commodities exchange using your broker to buy oil futures or options. You can invest in oil in 3 ways:
- Buy oil futures on commodity exchange using a broker
- Invest in oil using a CFD broker
- Buy oil ETF shares
- Buy shares of oil companies that are in the oil business.
How many barrels of oil are in a futures contract?
One futures contract contains 1,000 barrels or 42,000 gallons. However, because of the high leverage in oil futures trading, the trader does not need to pay the full amount of the contract.
Who buys oil futures?
Oil futures are bought by people who like active and volatile markets, usually trend traders. As derivative securities, oil futures give the holder the right to purchase oil at a specified price.
With changing times, nations are considering developing and using renewable energy sources, but crude remains popular. Though that’s about its general usage, the best way to exploit this commodity is by trading crude oil through oil futures, a derivative instrument. The question may arise in your mind: who buys oil futures, what are oil futures, and how do you trade oil futures? Well, this article will answer all your doubts.
As you might know, crude oil is a raw material used to make heating, gasoline, diesel, petrol, fuels, and other petrochemical products. Even in these different types, there are various fundamental grades and popularity levels for trading purposes. The most famous crude oil futures are “light sweet crude oil” as it is easily transformed into other products; it gets traded on NYMEX (New York Mercantile Exchange.) In second place comes Brent Blend Crude oil, which is mainly traded in the London market.
The futures market for crude oil is highly active and attractive to traders. These futures contracts’ rates are affected even by the smallest news, making it a haven for day traders and swing traders. Oil futures markets are volatile and suitable for short-term trading, but you can get burned if you lack skills and knowledge.
Types of Oil Futures
Three major countries worldwide are pioneers in producing oil. The United States is in first place, and recently, Russia has taken second place behind Saudi Arabia, putting it in third place.
There are many types of oil futures and many markets to trade them. One such is WTI (West Texas Intermediate), which is crude from the US wells; this product is sweet, light, and suitable for gasoline. It is traded on the Chicago Mercantile Exchange (CME) under the ticker name CL.
Another one is NYMEX Middle Eastern crude, also known as Dubai and Oman oil. Its high sulfur content makes it heavy and sour. It is traded on the Dubai Mercantile Exchange.
Suppose you want to learn more about the crude market and update yourself with the ups and downs. In that case, you should follow the Weekly Energy Stocks report released by the U.S. Energy Information Administration (EIA) every Wednesday around 1 o’clock noon (Eastern Time.)
What are Oil Futures?
If you are new in this commodity field, you may wonder what oil futures are; well, here is your detailed answer. Learn and remember these specs before you start trading.
Particular |
Details |
| Ticker Symbol |
CL |
| Trading Exchange |
NYMEX |
| Hours of Trading |
6 to 5 pm (Eastern time) |
| Contract Size |
42,000 Gallons or 1000 US Barrels |
| Contract Months |
All Months |
| Price / Quote |
Per Barrel Price |
| Tick Size |
$10 per Contract per $0.01 per Barrel |
| The Last Day of Trading | The third business day before the 25th calendar day of the month preceding the delivery month. |
How to day trade oil futures?
Oil futures can be traded daily, using a handy strategy (every few hours, change stop loss and target) on lower time frames such as M30, M15, and tick charts. See strategies below:
As a crude oil trader, you must understand the basics of oil futures. By taking an oil futures contract, you agree to buy or sell the commodity at the stated date of expiration at a pre-decided price. By holding the contract, you have to take the oil barrels’ physical delivery, and the only method of avoiding it is to execute the contract before expiry. You should not trade in oil futures if you start trading in the commodity market.
When to Trade Oil Futures?
Other commodity products, such as heating oil and unleaded gas prices, can impact crude oil futures rates. Crude oil witnesses higher demands in summer and winter. In summer, people take vacations, which boosts crude oil usage. In winter, people use heating oil (especially in the Northeast) to keep the surroundings warm. This leads to higher demand and higher price fluctuations.
It would help to keep yourself updated with the OPEC price slump or increase in supply (Organization of Petroleum Exporting Countries). It impacts oil prices around the globe very actively.
How much money do you need to trade oil futures?
Minimum futures trading amounts:
The amount of capital traders need to have in their accounts to trade an oil futures contract today depends on the futures broker. The lowest amount for trading futures is $100 for traders who use the MT5 platform (MT5 brokers). In practice, the minimum amount for trading futures must be more than $500. Some brokers require at least $1000 as a minimum amount for trading futures. Traders must have enough money in the account to accommodate potential losses.
Hotforex is a broker that offers futures trading in MT4 and MT5. It offers leading spot and futures contracts on Indices such as the FTSE (UK100), the NASDAQ (USA100), the DAX (GER30), etc., as well as oil futures.
What Affects Crude Futures?
The following events impact the prices of crude futures.
- News Events worldwide (it can be during the day or night, as futures are traded 24 hours a day.)
- Middle East nation’s economic condition they are a significant producer of oil.
- Price cut and supply acceleration of crude oil.
- Day trading investors’ emotions.
- Demand and Supply of oil.
- Geopolitical tensions in the Middle Eastern nations can create supply disruptions.
Another thing impacting crude prices is the value of the American dollar. If the dollar’s price is high, it will hike the crude prices, whereas a lower dollar rate would support the oil rates. Crude futures go parallel with the stock market but go in the opposite direction, like gold.
A stable and growing economy and a soaring market can prove a boon for higher crude oil rates. When oil prices hike dramatically and reach $100 per barrel, it would only harm the economy. Traders must keep track of all this news and change and work on their strategy accordingly to avoid losses and make profitable trades.
Price Fluctuations in Trading Crude Futures
In crude futures, the price fluctuates very rapidly, and the reason behind it is the traders. Day traders often wind up their positions when the price moves up or in the opposite direction. They even cover the trade with the buy order; for example, when they see that their short selling is not working out, they immediately sell their trade and place a buy order to go along with the long positions taken by other speculators.
In many cases, they may even receive a margin call if their trading accounts exceed the minimum margin requirements due to a sudden event causing loss.
Crude futures are often driven by psychological trades (trader biases of whether the price would shoot up or fall.) Following the trend in this market can prove helpful, but it can change at any time. Though the changes are not random, as the market gives some technical signs to traders, experience and skills are required to identify such indicators and place the trade at the exact time. One such indicator is trading in ranges; traders trade within a specific price range until the price bracket finally breaks out, and there is no room for the same price movements.
How to Trade Oil Futures?
Crude oil futures are undoubtedly very popular among day traders, but they are still highly risky, given the sensitivity of global events.
As a day trader of oil futures, you should monitor the pivot points to get the support and resistance levels. It would help if you also had a stop loss to save your trades from downside risk. It would help if you learned to update yourself daily with global events. Trading crude futures is similar to trading stock index futures like E-mini S&P.
Trading crude futures is not rocket science but involves meticulousness in trading and thinking capabilities. So, keep yourself focused, gain exposure, make mistakes (not too much that you can’t afford to trade again), and learn from your experience. And with time, you will find it easy to trade this commodity.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
