Investors just got a new tool for trading energy as prices surge: micro contracts on CME’s Group’s WTI crude oil futures.
The new product began trading last night under the symbol root “MCL.” It will represent 100 barrels of crude oil, one-tenth the standard WTI contracts using the symbol root “CL.” The Micro contracts have a two other differences from the previous standard contracts:
- Micros settle financially, or in cash. That means traders are credited/debited profits or losses on positions at expiration. (Standard contracts settle with physical delivery.)
- Micros settle one day before the standard WTI crude-oil contracts.
The new products will have lower margin requirements because of their smaller size. That will make them accessible to a wider set of traders. It also makes them more scalable, letting customers enter positions in smaller increments. (Micro contracts also exist on stock indexes like the S&P 500, Bitcoin and Eurex’s European benchmarks.)
What Are Crude Oil Futures?
Expiration Codes | |
| F | January |
| G | February |
| H | March |
| J | April |
| K | May |
| M | June |
| N | July |
| Q | August |
| U | September |
| V | October |
| X | November |
| Z | December |
Crude oil futures are derivative contracts listed on CME. They track the underlying price of West Texas Intermediate (WTI) crude oil. There are many different contracts because crude oil futures expire each month. Their symbols are built around the root, an expiration month code and expiration year.
For example, the current on-the-run crude oil futures contract is CLQ21. (“Q” is the code for August and “21” is the year.)
The new Micro on-the-run crude oil futures contract is MCLQ21. (Notice the different root, “MCL.”)
Traders take long or short positions in futures. Longs make money when prices rise and lose money to the downside. Shorts profit when prices decline and lose money to the upside.
Oil Prices Rising
The new products launch at an interesting time for the energy market. Crude oil prices are pushing their highest levels in more than a year as demand rebounds from the coronavirus pandemic. U.S. inventories declined by about 10 million barrels in early July to their lowest level since April 2019.
Meanwhile, the global oil market remains at an impasse because of a disagreement between Saudi Arabia and the United Arab Emirates. The UAE historically followed the Saudis, but this time they want to increase production more quickly. That disagreement has kept OPEC from announcing any boost in drilling after coronavirus forced the cartel to slash output last year.
this uncertainty may create volatility in crude oil prices and potential opportunities for traders. If you’re not familiar with this market, it could be an interesting time to learn. And CME’s new micro contracts could allow more traders to get started.
