Before you trade crude oil futures, it is important to understand some of the pricing terms which may be used in international crude oil trade. According to information from the Energy Information Administration, most internationally traded crude oil is priced by a formula which uses a market indicator or benchmark, and it is adjusted higher or lower based on the quality of the oil. In general, denser crude oil with high sulfur content requires more refining and may trade at a discount to a lighter crude oil with lower sulfur content which is more easily refined.

Futures contracts on crude oil are standardized and specify delivery of a certain quality of crude oil at a date and place in the future.  Many futures contracts are traded by speculators hoping to profit from fluctuations in crude oil prices.

On NYMEX, crude oil futures contracts are available for many months into the future,  72 months on some contracts. Delivery months that are further out usually have extremely lower volume.

For light sweet crude oil futures, the NYMEX has the regular futures contract which represents 1000 barrels of light sweet crude and also a mini contract on crude oil futures which at 500 barrels represents half of the regular sized contract. Risk is not lessened and remains substantial whether using a full size or mini-sized crude oil futures contract.

Since crude oil prices can affect the price of end products like heating oil and gasoline, crude oil futures  markets are widely followed by market participants and interested parties. Certain prices in crude oil futures markets are also, including trading above and beyond $100 per barrel. Recent lows below $40 a barrel made headlines. Crude oil futures markets offer many opportunities and many pitfalls. Learn as much as you can about the markets and events which may impact price.

Register for free for our crude oil report!

Disclaimer: Trading in futures and options involves a substantial degree of a risk of loss and is not suitable for all investors. Past performance is not indicative of future results.