When people think about “commodities,” few items spring to mind faster than crude oil. Let’s consider a major way to trade it: Nymex WTI crude oil futures.
These contracts track the oil most commonly produced in the U.S. and fluctuate with global energy markets. Clients can go long to position for a rally in oil or go short to play a decline.
Every dollar, or point, in movement represents $1,000 per contract in your account. It also fluctuates in increments as little as a penny, or 0.01, so each tick represents $10.
Like CME’s S&P 500 E-minis, crude-oil futures have margin requirements and track changes in the underlying commodity. Traders only see profits or losses in their accounts rather than principal value. The contracts also trade virtually around the clock.
Here are the key details:
- What it tracks: WTI crude oil
- How it tracks it: $1,000 per point, $10 per 0.01 point.
- When it trades: Sunday at 6 p.m. ET through Friday at 5 p.m. ET. Each day during the week it halts 5-6 p.m. ET.
- Capital required during the normal session: $2,145 to enter, $1,850 to hold. This is based on the $4,290 initial margin requirement and the $3,900 maintenance margin.
- Expirations: Each month on the third Friday.
- Continuous contract symbol: @CL.
While @CL has a lot of similarities with @ES, one huge difference is in its physical settlement. In theory that means investors holding through expiration may be on the hook to accept or deliver 1,000 barrels of actual crude oil per contract. However, TradeStation requires clients to roll forward to the next month or close their positions before this happens.
Traders may go long or short @CL for a number of reasons. First, oil fluctuates with supply and demand. We get a weekly reading of supply from the U.S. Energy Information Agency’s inventory report. It’s usually on Wednesday at 10:30 a.m. ET, although on holiday weeks like this week it’s on Thursday at 11 a.m. ET.
Other catalysts impacting supply are the Baker Hughes weekly rig count on Friday at 1 p.m. ET and sporadic headlines overseas. That can include political events (think Iran) or the policies of OPEC countries.
Demand is mostly driven by economic growth. Recession is generally bearish because it entails less need for energy, and business expansion is generally bullish.
The other big factor for oil is seasonality because the market changes at certain times in the year as refineries do maintenance and shift between the production of gasoline and heating oil. We’ll explore seasonality in a future post.
Traders should also realize that WTI, short for “West Texas Intermediate,” is only one type of oil. (It happens to be tracked at a pipeline hub, ironically located in Oklahoma.) You’ll also hear about “Brent crude,” based on a British form of oil. Brent has a symbol root of “BZ-” and is much more common in Europe. It has a different price than @CL, but both tend to move in tandem with each other.
In conclusion, WTI crude oil futures are a major product that make it possible to profit from moves in the global energy market. Even if you don’t trade them, they impact a wide range of other assets like the shares of energy companies. They’re definitely worth following for anyone interested in financial markets…