Crude Oil Futures Options Trading

 Crude Oil Futures & Options Trading

Crude Oil Futures

Light Sweet Crude Oil is traded on the New York Mercantile Exchange(NYMEX). "Light Sweet" is the most popular grade of crude oil that is traded. Another grade of oil is Brent Crude, which is primarily traded in London.  Crude oil is the raw material that is refined to produce gasoline, heating oil, diesel, jet fuel and many other petrochemicals.

Russia, Saudi Arabia, and the United States are the world’s three largest oil producers.  When crude oil is refined, or processed, it takes about 3 barrels of oil to produce 2 barrels of unleaded gas now known as RBOB and 1 barrel of heating oil.

Introduction to Crude Oil

Course Overview

Today’s energy crude oil market is truly global. From West Texas Intermediate (WTI) to Brent and DME Oman, the crude oil market fuels many of the world’s leading economies and impact nearly every nation. Energy crude oil futures and options provide the tools the industry needs to manage risk. Explore the key concepts and structure of today’s energy markets, including the factors that affect supply and demand and move prices. Learn how to use these instruments to hedge exposure and unlock opportunities.

Introduction to Crude Oil

Crude Oil Reports:

The main reports for crude oil are the EIA Weekly Energy Stocks report. This report is released every Wednesday around 10:30 PM EST.

Trading Crude Oil Futures:

  • The prices of unleaded gas and heating oil can influence the price of crude oil.
  • Demand is generally highest during the summer and winter months. A very hot summer or very active driving season (for summer vacations) can increase the demand for crude oil and cause prices to move higher.
  • An extremely cold winter causes higher demand for heating oil, which is made from crude oil. This usually cause prices to move higher. Watch the weather in the Northeast, since it is the part of the country that predominately uses heating oil.
  • Watch for oil production cuts or increases from OPEC.

Crude Oil Futures:

Unit of trading - 1,000 barrels

Delivery point is Cushing, Oklahoma, which is also accessible to the international spot markets via pipelines

Delivery provided for several grades of domestic and internationally traded foreign crudes

Six types of options: American style, calendar spread, crack spreads, average price, European style and daily

Crude oil is the world's most actively traded commodity. Light, sweet crude's are preferred by refiners because of their low sulfur content and relatively high yields of high-value products such as gasoline, diesel fuel, heating oil, and jet fuel.

NYMEX, a member exchange of CME Group, also lists for trading electronically a financially settled futures contract for Dubai crude oil; a futures contract on the differential between the light, sweet crude oil futures contract and Canadian Bow River crude at Hardisty, Alberta; and futures contracts on the differentials of the light, sweet crude oil futures contract and four domestic grades of crude oil: Light Louisiana Sweet, West Texas Intermediate-Midland, West Texas Sour, and Mars Blend.

NYMEX Crude Oil Futures Contract Specifications

Product Symbol    CL

Venue    CME Globex, CME ClearPort, Open Outcry (New York)

Hours
(All Times are New York Time/ET)

CME Globex    Sunday - Friday 6:00 p.m. - 5:15 p.m. New York time/ET (5:00 p.m. - 4:15 p.m. Chicago Time/CT) with a 45-minute break each day beginning at 5:15 p.m. (4:15 p.m. CT)

CME ClearPort    Sunday – Friday 6:00 p.m. – 5:15 p.m. (5:00 p.m. – 4:15 p.m. Chicago Time/CT) with a 45-minute break each day beginning at 5:15 p.m. (4:15 p.m. CT)

Open Outcry    Monday – Friday 9:00 AM to 2:30 PM (8:00 AM to 1:30 PM CT)

Contract Unit    1,000 barrels

Price Quotation    U.S. Dollars and Cents per barrel

Minimum Fluctuation    $0.01per barrel

Termination of Trading    Trading in the current delivery month shall cease on the third business day prior to the twenty-fifth calendar day of the month preceding the delivery month. If the twenty-fifth calendar day of the month is a non-business day, trading shall cease on the third business day prior to the last business day preceding the twenty-fifth calendar day. In the event that the official Exchange holiday schedule changes subsequent to the listing of a Crude Oil futures, the originally listed expiration date shall remain in effect. In the event that the originally listed expiration day is declared a holiday, expiration will move to the business day immediately prior.

Listed Contracts    Crude oil futures are listed nine years forward using the following listing schedule: consecutive months are listed for the current year and the next five years; in addition, the June and December contract months are listed beyond the sixth year. Additional months will be added on an annual basis after the December contract expires, so that an additional June and December contract would be added nine years forward, and the consecutive months in the sixth calendar year will be filled in.

Additionally, trading can be executed at an average differential to the previous day's settlement prices for periods of two to 30 consecutive months in a single transaction. These calendar strips are executed during open outcry trading hours.

Settlement Type    Physical

Trading at Settlement (TAS)    Trading at settlement is available for spot (except on the last trading day), 2nd, 3rd and 7th months and subject to the existing TAS rules. Trading in all TAS products will cease daily at 2:30 PM Eastern Time. The TAS products will trade off of a "Base Price" of 0 to create a differential (plus or minus 10 ticks) versus settlement in the underlying product on a 1 to 1 basis. A trade done at the Base Price of 0 will correspond to a "traditional" TAS trade which will clear exactly at the final settlement price of the day.

Delivery

(A) Delivery shall be made F.O.B. at any pipeline or storage facility in Cushing, Oklahoma with pipeline access to TEPPCO, Cushing storage or Equilon Pipeline Company LLC Cushing storage. Delivery shall be made in accordance with all applicable Federal executive orders and all applicable Federal, State and local laws and regulations. For the purposes of this Rule, the term F.O.B. shall mean a delivery in which the seller:provides light "sweet" crude oil to the point of connection between seller's incoming and buyer's outgoing pipeline or storage facility which is free of all liens, encumbrances, unpaid taxes, fees and other charges; in the event of the buyer's election to take delivery by interfacility transfer ("pumpover") to either TEPPCO, Cushing or Equilon Pipeline Company LLC, Cushing, from seller's delivery facility, bears the lesser of the pumpover charge applicable for pumpover from seller's delivery facility to TEPPCO or Equilon Pipeline Company LLC;
retains title to and bears the risk of loss for the product to the point of connection between the buyer's outgoing and the seller's incoming pipeline or storage facility.

(B) At buyer's option, such delivery shall be made by any of the following methods: By interfacility transfer ("pumpover") into a designated pipeline or storage facility with access to seller's incoming pipeline or storage facility. By in-tank transfer of title to the buyer without physical movement of product; if the facility used by the seller allows such transfer, or by in-line transfer or book-out if the seller agrees to such transfer.
(
C) All deliveries made in accordance with these rules shall be final and there shall be no appeal.

(D) Transfer of title-The seller shall give the buyer pipeline ticket, any other quantitative certificates and all appropriate documents upon receipt of payment.

The seller shall provide preliminary confirmation of title transfer at the time of delivery by telex or other appropriate form of documentation.

Grade and Quality Specifications    Please see rulebook chapter 200

Position Limits    NYMEX Position Limits

Rulebook Chapter    200

Exchange Rule    These contracts are listed with, and subject to, the rules and regulations of NYMEX.

Crude Oil Futures Options

Underlying Futures    Light Sweet Crude Oil Futures (CL)

Product Symbol    LO

Venue    CME Globex, CME ClearPort, Open Outcry (New York)

Hours
(All Times are New York Time/ET)

CME ClearPort:    Sunday – Friday 6:00 p.m. – 5:15 p.m. (5:00 p.m. – 4:15 p.m. Chicago Time/CT) with a 45-minute break each day beginning at 5:15 p.m. (4:15 p.m. CT)

CME Globex:    Sunday – Friday 6:00 p.m. – 5:15 p.m. (5:00 p.m. – 4:15 p.m. Chicago Time/CT) with a 45-minute break each day beginning at 5:15 p.m. (4:15 p.m. CT)

Open Outcry:    Monday – Friday 9:00 AM to 2:30 PM (8:00 AM to 1:30 PM CT)

Contract Unit    A Light Sweet Crude Oil Put (Call) Option traded on the Exchange represents an option to assume a short (long) position in the underlying Light Sweet Crude Oil Futures traded on the Exchange.

Price Quotation    U.S. dollars and cents per barrel.

Option Style    American

Minimum Fluctuation    $0.01 per barrel

Expiration of Trading    Trading ends three business days before the termination of trading in the underlying futures contract.
Listed Contracts    Crude oil options are listed nine years forward using the following listing schedule: consecutive months are listed for the current year and the next five years; in addition, the June and December contract months are listed beyond the sixth year. Additional months will be added on an annual basis after the December contract expires, so that an additional June and December contract would be added nine years forward, and the consecutive months in the sixth calendar year will be filled in.

Strike Prices    Twenty strike prices in increments of $0.50 per barrel above and below the at-the-money strike price, and the next 10 strike prices in increments of $2.50 above the highest and below the lowest existing strike prices for a total of at least 61 strike prices. The at-the-money strike price is nearest to the previous day's close of the underlying futures contract. Strike price boundaries are adjusted according to the futures price movements.

Settlement Type    Physical

Position Limits    NYMEX Position Limits

Rulebook Chapter    310

Exchange Rule    These contracts are listed with, and subject to, the rules and regulations of NYMEX.

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