Crude Oil Futures and Crude Oil Options
Light, Sweet Crude Oil
Crude oil is the world's most actively traded commodity. Over the past decade,
the NYMEX Division light, sweet (low-sulfur) crude oil futures contract has
become the world's most liquid forum for crude oil trading, as well as the world's
largest-volume futures contract trading on a physical commodity. Because of
its excellent liquidity and price transparency, the contract is used as a principal
international pricing benchmark.
The contracts delivery point is Cushing, Oklahoma, the nexus of spot market trading in the United States, which is also accessible to the international spot markets via pipelines. By providing for delivery of several grades of domestic and internationally traded foreign crudes, the futures contract is designed to serve the diverse needs of the physical market.
Light, sweet crudes are preferred by refiners because of their relatively high yields of high-value products such as gasoline, diesel fuel, heating oil, and jet fuel.
Middle East Crude Oil Futures Contract and Index
On May 4, the New York Mercantile Exchange introduced its Middle East crude oil futures contract. The contract is for cash settlement based on an average of the value of Dubai and Oman crude oil as reported by various price reporting services. These price reporting services include: Bloomberg, ICIS-LOR, Petroleum Argus, Reuters, RIM Intelligence, and Telerate. The New York Mercantile Exchange uses price assessments reported by each of these services to calculate the New York Mercantile Exchange Middle East crude oil index for each global business day (provided that at least three services publish price assessments for that date). The index is published by the Exchange on the first business day following the trade date. The final settlement of the Middle East sour crude oil futures contract is the average of all index values published during the delivery month.
A detailed description of the Middle East crude oil futures contract and index is provided below.
The Futures Contract
New York Mercantile Exchange Middle East crude oil futures contract trades with prices quoted in dollars and cents per barrel ($00.00/bbl) and a contract unit of 1,000 barrels. The max/min price fluctuation rules are consistent with the Exchange's light, sweet crude oil futures contract as are settlement procedures up through the termination of regular trading, which is the final business day prior to the delivery month. (e.g. September 30 for an October contract).
After the last day of regular trading, final settlement of the contract is based on cash settlement against the cumulative monthly average of the index over the course of the contract month. On the second business day of the contract month, open positions are marked-to-market, based on the average of the index on the first business day of the month. The index for each business day is calculated by the Exchange, averaged with those prices from previous business days in the month, and published on the Exchange website and through other distribution channels. The calculation of the final settlement price is completed on the final business date of the contract month (e.g. October 30 for the October 1998 contract).
The Index
The New York Mercantile Exchange Middle East crude oil index is a calculation based on assessments of Dubai and Oman crude oil published by six price reporting services which include Bloomberg, ICIS-LOR, Petroleum Argus, Reuters, RIM Intelligence, and Telerate. The index is be published by the Exchange each business day for the previous business date.
Each of the price reporting services provide multiple price assessments for Dubai and Oman crude throughout the global trading day; some more than others. The average of all of the intra-day Dubai assessments and the average of all of the intra-day Oman assessments of each price reporting service is used for calculation of the index.
To calculate the index, six assessments are collected for Dubai crude oil and six assessments for Oman crude oil (one for Dubai and one for Oman from each of the six price reporting services). For each of the referenced crude oils, the high and low prices are eliminated and the four middle prices are averaged to determine the Dubai and Oman components of the index. These prices are posted anonymously, without identifying the individual price reporting service. If there are less than five contributions to the index, the outliers are not removed and, if there are less than three contributions, the index is not published for that business date. The components are then averaged together to calculate the New York Mercantile Exchange Middle East crude oil index. The Exchange publishes the Dubai component, the Oman component, the index, and the running average of the index each day.
For each business date during a contract month, the index is calculated (see formula below) and published on the following business day by 10:00 A.M. NYT on the Exchange website (www.nymex.com). In addition to publishing the Dubai component, the Oman component, and the index each day, a running average of the index is published, and is the basis of marking-to-market calculations for variation margin payments on positions carried to final settlement. The final settlement is determined on the final business day of the contract month.
MEC
Index Daily Calculation
(formula)
Six
Dubai Contributions >From Price Reports
Six Oman Contributions >From Price Reports
Calculate Index on Exchange Business Days
Daily Index = (AVG. OF DUBAI*)+(AVG. OF OMAN*)
2
*
Remove outliers (high and low) if there are at least five contributions
Index is not published if there are fewer than three contributors
The New York Mercantile Exchange owns trade name and trademark rights to The New York Mercantile Exchange Middle East Sour Crude Oil Index ("Index").
Crude Oil Contract Specifications
Light, Sweet Crude Oil
Trading unit
Futures:
1,000 U.S. barrels (42,000 gallons).
Options: One NYMEX Division light, sweet crude oil futures contract.
Trading Hours
Futures and Options: 9:45 A.M. to 3:10 P.M., for the open outcry session.
After-hours trading is conducted via the NYMEX ACCESSa??q electronic trading system from 7 P.M. to 9 A.M. on Sundays and 4 P.M. to 9 A.M., Mondays through Thursdays. All times are New York time.
Trading Months
Futures: 30 consecutive months plus long-dated futures initially listed 36, 48, 60, 72, and 84 months prior to delivery.
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.
Options: Twelve consecutive months, plus three long-dated options at 18, 24, and 36 months out on a June/December cycle.
Price Quotation
Futures and Options: Dollars and cents per barrel.
Minimum Price Fluctuation
Futures and Options: $0.01 (1??e) per barrel ($10 per contract).
Maximum Daily Price Fluctuation
Futures: Initial limits of $3.00 per barrel are in place in all but the first two months and rise to $6.00 per barrel if the previous day s settlement price in any back month is at the $3.00 limit. In the event of a $7.50 per barrel move in either of the first two contract months, limits on all months become $7.50 per barrel from the limit in place in the direction of the move following a one-hour trading halt.
Options: No price limits.
Last Trading Day
Futures: Trading terminates at the close of business on the third business day prior to the 25th calendar day of the month preceding the delivery month. If the 25th 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 25th calendar day.
Options: Trading ends three business days before the underlying futures contract.
Exercise of Options
By a clearing member to the Exchange clearinghouse not later than 5:30 P.M., or 45 minutes after the underlying futures settlement price is posted, whichever is later, on any day up to and including the option s expiration.
Options Strike Prices
Twenty strike prices in increments of $0.50 (50??e) per barrel above and below the at-the-money strike price, and the next ten 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.
Delivery
F.O.B. seller s facility, Cushing, Oklahoma, at any pipeline or storage facility with pipeline access to Arco, Cushing storage, or Texaco Trading and Transportation Inc., by in-tank transfer, in-line transfer, book-out, or inter-facility transfer (pumpover).
Delivery Period
All deliveries are rateable over the course of the month and must be initiated on or after the first calendar day and completed by the last calendar day of the delivery month.
Alternate Delivery Procedure (ADP)
An Alternate Delivery Procedure is available to buyers and sellers who have been matched by the Exchange subsequent to the termination of trading in the spot month contract. If buyer and seller agree to consummate delivery under terms different from those prescribed in the contract specifications, they may proceed on that basis after submitting a notice of their intention to the Exchange.
Exchange of Futures for, or in Connection with, Physicals (EFP)
The commercial buyer or seller may exchange a futures position for a physical position of equal quantity by submitting a notice to the Exchange. EFPs may be used to either initiate or liquidate a futures position.
Deliverable Grades
Specific domestic crudes with 0.42% sulfur by weight or less, not less than 37? API gravity nor more than 42? API gravity. The following domestic crude streams are deliverable: West Texas Intermediate, Low Sweet Mix, New Mexican Sweet, North Texas Sweet, Oklahoma Sweet, South Texas Sweet.
Specific foreign crudes of not less than 34? API nor more than 42? API. The following foreign streams are deliverable: U.K. Brent and Norwegian Oseberg Blend, for which the seller shall receive a 30??e-per-barrel discount below the final settlement price; U.K. Forties is delivered at a 30-cent discount; Nigerian Bonny Light and Columbian Cusiana are delivered at 15-cent premiums; and Nigerian Qua Iboe is delivered at a 5-cent premium.
Inspection
Inspection shall be conducted in accordance with pipeline practices. A buyer or seller may appoint an inspector to inspect the quality of oil delivered. However, the buyer or seller who requests the inspection will bear its costs and will notify the other party of the transaction that the inspection will occur.
Position Limits
15,000 contracts for all months combined, but not to exceed 1,000 in the last three days of trading in the spot month or 7,500 in any one month.
Margin Requirements
Margins are required for open futures or short options positions. The margin requirement for an options purchaser will never exceed the premium.
Trading Symbols
Futures:
CL
Options: LO
CARE HAS BEEN TAKEN IN THE PRESENTATION OF THIS PUBLICATION, BUT THERE IS NO WARRANTY OR REPRESENTATION EXPRESSED OR IMPLIED AS TO ITS ACCURACY OR COMPLETENESS, AND IT IS INTENDED ONLY FOR PURPOSES OF INFORMATION AND EDUCATION. IN PARTICULAR, RULES AND REGULATIONS MAY BE REVISED FROM TIME TO TIME. ACCORDINGLY, THE RULES AND REGULATIONS OF THE EXCHANGE SHOULD BE CONSULTED AS THE AUTHORITATIVE SOURCE ON ALL-CURRENT CONTRACT SPECIFICATIONS AND REGULATIONS. NOTHING HEREIN SHOULD BE CONSIDERED AS A TRADING RECOMMENDATION.
FUTURES AND OPTIONS TRADING CARRY SIGNIFICANT RISK AND SHOULD BE CONSIDERED ONLY BY THOSE WHO CAN AFFORD TO LOSE SOME OR MORE THAN ALL OF THEIR INVESTMENT. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. FUNDAMENTAL ANALYSIS DEALS WITH THE STUDY OF SUPPLY AND DEMAND IN ATTEMPTING TO FORECAST FUTURES AND OPTIONS PRICES. THE INFORMATION DISPLAYED HEREIN DO NOT REFLECT COMMISSIONS, PREMIUMS OR FEES, NOR ALL THE FACTORS IN THE STUDY OF SUPPLY AND DEMAND. NO REPRESENTATION IS BEING MADE THAT THE FACTORS DISPLAYED CARRY MORE WEIGHT THAN ANY OTHER FACTOR OF FORECASTING.
THE INFORMATION CONTAINED HEREIN IS GATHERED FROM SOURCES WE BELIEVE TO BE RELIABLE, BUT CANNOT BE GUARANTEED. OPINIONS EXPRESSED ARE SUBJECT TO CHANGE WITHOUT NOTICE. THOSE USING THIS INFORMATION HEREIN FOR TRADING PURPOSES ARE RESPONSIBLE FOR THEIR OWN ACTION AND NO CLAIM IS MADE THAT THE RECOMMENDATIONS WILL BE PROFITABLE OR THAT THEY WILL RESULT IN LOSSES. TRADING COMMODITIES, FUTURES AND OPTIONS INVOLVES SIGNIFICANT RISK AND IS NOT SUITABLE FOR ALL INVESTORS.