Petroleum futures contracts – your way to trade black gold
Petroleum, “black gold”, is a natural resource that bears great importance in terms of the world economy, states IronFX. Petroleum, pumped from deep underground, serves the global economy with a vast diversity of uses, from fuel to plastic manufacturing, electricity production, and more.
Petroleum prices impact almost every economical aspect of our lives as well as the entire global economy. Futures contracts on petroleum are the main financial means for conducting petroleum deals and are an investment channel which serves investors as a means for turning a profit without actually dealing with the goods, explains IronFX. Futures contracts on petroleum are available today in several ways.
The futures contract market is the main market for commodities – agricultural goods, energy commodities, and metals. In practice, petroleum futures allow the selling and purchasing parties to determine the price on the date of supply as per the price on the commodities market at the time of contract execution. Thus, reducing the risk and uncertainty for both parties while creating an opportunity for financial investors to profit, explains IronFX. Trading petroleum futures or any other goods allows for gains by taking long (purchasing) or short (selling) positions on the market; price increases create gains for those who take long positions, and price drops create gains for those who take short positions.
Futures contracts on petroleum are usually conducted according to a standard contract size; 1,000 barrels of petroleum is one standard contract and an e-mini contract is comprised of 500 barrels. Minimum price volatility on a petroleum future is one cent per barrel, so for large contracts, every one-cent change in prices means a $10 change on the contract. On e-mini contracts, the minimum price volatility is 25 cents, so any change will mean $12.5.
There are two main types of crude oil traded on the petroleum futures market – as follows:
- WTI Crude: Sometimes referred to Texas light sweet because of some of its characteristics and its suitability to the manufacture of fuels, the name is short for Western Texas Intermediate and it is the main type of crude oil produced in the world. In the past, in most years when petroleum futures were traded, WTI was more expensive than the other type – Brent – but in recent years, there have been changes in this trend, states IronFx.
- Brent Crude: This is a crude oil pumped from drilling rigs in the North Sea, where huge stores are frequently discovered. This crude oil makes up a bit over one percent of petroleum consumes worldwide, but still has a significant impact on fuel and petroleum distillate prices worldwide.