Crude Oil is a naturally occurring, unrefined petroleum product composed of hydrocarbon deposits and other organic materials. A type of fossil fuel, crude oil can be refined to produce usable products such as gasoline, diesel and various forms of petrochemicals. It is a nonrenewable resource, which means that it can’t be replaced naturally at the rate we consume it and is, therefore, a limited resource.
INVESTING IN OIL
Investors may purchase two types of oil contracts futures contracts and spot contracts.
The price of the spot contracts reflects the current market price for oil, whereas the futures price reflects the price buyers are willing to pay for oil on a delivery date set at some point in the future. The futures price is no guarantee that oil will hit that price in the current market when the date comes; it is just the price that, at the time of the contract, purchasers of oil are anticipating. The actual price of oil on that date depends on many factors.
Commodity contracts bought and sold on the spot markets take effect immediately; money is exchanged, and the purchaser accepts delivery of the goods. In the case of oil, the demand for immediate delivery versus future delivery is small, because in no small part of the logistics of transposing oil to users. Investors, of course, do not intend to take delivery at all (although there have been situations where an investor’s error has resulted in this), so futures contracts are more common, among both end-users and investors.
An oil future contract is an agreement to buy or sell a certain number of barrels set amount of oil at a predetermined price on a predetermined date. When futures are purchased, a contract is signed between buyer and seller and secured with a margin payment that covers a percentage of the total value of the contract. End-users of oil purchase on the futures market to lock in a price; investors buy futures to essentially gamble on what the price will be down the road and profit by guessing correctly. Typically, they will liquidate or roll over their future holdings before they will have to take delivery.
There are two major oil contracts in which oil market participants are most interested. In North America, the benchmark for oil futures is West Texas Intermediate (WTI) crude, which trades on the New York Mercantile Exchange (NYMEX). In Europe, Africa, and the Middle East, the benchmark is North Sea Brent crude, which trades on the Intercontinental Exchange (ICE). While the two contracts move somewhat in unison, WTI is more sensitive to American economic developments, and Brent responds more to those overseas. While there are multiple futures contracts open at once, most trading revolves around the front-month contract (the nearest futures contract); for this reason, it’s is known as the most active contract.
Trading Crude Oil with PRIOR CAPITAL CY LTD:
Since 2005 Crude Oil has been traded on the electronic Intercontinental Exchange, known as ICE. One contract is equal to 100 barrels and is quoted in U.S. Dollars. In the world of Forex, Crude oil is traded as a CFD using the same quantities relative to “barrels” with USD as a base currency( 1 Lot = 100 Barrels). Because of global demand, Crude Oil is seen as an extremely sensitive and volatile commodity that can jump dramatically in response to heightened political and economic circumstances. A clear example would be the recent civil war in Libya which caused Oil prices to jump sharply from $85 to roughly $115 a barrel over a very short time. Prior Capital CY LTD realizes how important having optimal Crude Oil trading conditions can be to the individual trader and offers Crude Oil trading in G.B.P. as well as traditional U.S. Dollar pricing (shown as UKOIL and USOIL respectively).
Additional Information Regarding Crude Oil:
At PRIOR CAPITAL CY LTD rollovers are dealt with on a “spot” basis only. Meaning that all positions are settled two business days from inception, as per market rules. Prior Capital CY LTD will not facilitate actual physical delivery of either precious metals/currency.
• The above illustrations are mere fictitious examples and are not to be construed in any way to constitute investment advice.
• The performance figures quoted are only estimates and may not be a reliable indicator of the future performance of this investment.
• This information does not constitute an offer or solicitation and is provided for information shall not be deemed to constitute advice and should not be relied on as such to enter into a transaction or for any investment decision. Any opinions expressed in this document represent the views of PRIOR CAPITAL CY LTD at the time of preparation. They are thus subject to change without notice. PRIOR CAPITAL CY LTD believes that the information contained herein is accurate as at the date of publication. However, no warranty of accuracy is given by PRIOR CAPITAL CY LTD and no liability in respect of any errors or omissions, including any third party liability, are accepted by PRIOR CAPITAL CY LTD or any director, officer or employee.