The global energy futures marketplace facilitates the trade of a diverse array of participants. No matter if a producer is hedging systemic production risks or a trader is aiming to capitalize upon rapid pricing fluctuations, energy products are opportune vehicles for achieving a broad spectrum of market-related goals.
Prominent Energy Products
According to Bloomberg, here are the leading energy products and the exchanges where their corresponding futures contracts may be found:
| Product | Exchange |
|---|
| WTI Crude Oil | NYMEX |
| Natural Gas | NYMEX |
| RBOB Gasoline | NYMEX |
| Heating Oil | NYMEX |
| Brent Crude Oil | ICE |
Since the August 2008 merger between the Chicago Mercantile Exchange (CME) and the New York Mercantile Exchange (NYMEX), the energy products exclusive to the NYMEX are available for trade via the CME Globex. Brent Crude Oil is accessible on the Intercontinental Exchange (ICE).
Energy Volumes
The trade of energy futures contracts represents a substantial portion of the aggregate derivatives marketplace. Listed are the energy products, corresponding symbols, andaverage daily traded volume for the second quarter (Q2) of 2017:
| Product | Symbol | Average Daily Volume (ADV) |
|---|
| WTI Crude Oil | Cl | 1,236,392 |
| Henry Hub Natural Gas | NG | 420,572 |
| RBOB Gasoline | RB | 198,722 |
| NY Harbor ULSD (Heating Oil) | HO | 168,276 |
| Brent Crude Oil | BZ | 101,424 |
As illustrated by the ADV, the West Texas Intermediate (WTI) crude oil and Henry Hub natural gas contracts provide the highest degree of liquidity and market depth. Due to this characteristic, they are often viewed as the benchmark products of the global energy trade.
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WTI Crude Oil
Aside from gold, crude oil is the most frequently referenced commodity in the world. WTI crude oil markets are known for their liquidity and volatility, earning the moniker “the wild west of futures trading.”
WTI crude oil pricing regularly exhibits considerable sensitivity to global geopolitical disruptions. Foreign wars, internal revolution, and general unrest have historically plagued producing regions. These stimuli are capable of bolstering market participation and enhancing volatility in a rapid fashion.
As an illustration of this concept, the subsequent price action related to the following events is indicative of WTI crude’s pricing reactivity:
- 2008 World Debt Crisis/Iran Missile Testing: Crude oil futures hit all-time highs of$146.90 per barrel.
- 2011 Arab Spring: Supply-chain concerns caused by widespread civil unrest in Egypt, Libya, Yemen, and Syria spiked the price of WTI crude by11.3 percent for the third week of February 2011.
- 2013 U.S./Syria Tensions: Ongoing tensions with Syria and U.S. threats of directly arming rebel groups quickly drove WTI crude oil pricesto $98.25, the highest in a year.
- 2014 Global Supply Glut: WTI crude oil value tumbled more than 50 percent during the six-month period from August 2014 to January 2015. Advances in horizontal drilling technology, coupled with decreasing demand from China, sent the price of crude oil from more than $100 per/bbl to just north of $40 per/bbl.
In order to keep market participants aware of the current crude oil atmosphere, the U.S. Energy Information Administration (EIA) releases a weekly inventories report. Each release is met with considerable volatility and high levels of market participation.
Henry Hub Natural Gas
As the second most frequently traded energy product, Henry Hub natural gas is a popular contract for both energy hedgers and speculators alike. Named after the foremost delivery point of natural gas in America, Louisiana’s Henry Hub pipeline, Henry Hub natural gas futures are the North American benchmark for pricing.
In contrast to crude oil, natural gas valuations are not overly sensitive to geopolitical tensions. Traditional supply and demand forces are more commonly cited as the reasons for periodic swings in pricing. Examples of factors that influence the price of natural gas are:
- Production levels
- Imports and exports
- Storage challenges
- Seasonal climate implications
According to the EIA, the United States, Russia and Saudi Arabia are the global leaders in natural gas production. In much the same fashion as WTI crude oil, the EIA releases a weekly natural gas inventories report to keep investors abreast of the current dynamics driving the market.
Becoming Active in Energy Futures
No doubt about it, WTI crude oil and Henry Hub natural gas contracts are capable of producing substantial daily trading ranges and frequent directional moves in price. Given the proper experience and outlook, these markets can bring considerable opportunity.
However, the enhanced volatilities that short-term futures traders find attractive also increase risk. Before jumping into these markets, it’s a good idea to commission the expertise of an industry professional. A great place to start is our Energy Futures Overview. This robust educational suite provides everything a trader needs to become fluent in the trade of energy futures.
FAQs
Like any commodity or stock, electricity and natural gas have a futures market. That is, the future delivery of electricity or natural gas at a certain given time can be traded or agreed upon ahead of time.
What is an example of crude oil futures trading? ›
You can also use oil futures to speculate on oil prices. For instance, if you believe that the price of Brent crude will increase above its current spot price of $130 per barrel, you'd assume oil futures would trade higher than that – at $132. If you decide to go long, you'd 'buy' an oil future.
What is the crude oil futures? ›
Crude oil futures are considered a key benchmark for the entire energy industry and can be used for both hedging and speculating. One of the most widely used commodities, it's used for gasoline, diesel fuel, heating oil, and jet fuel.
When to trade crude oil futures? ›
A popular time to trade oil is between 20:00 (UTC+8) and 13.30 (UTC+8) – which is when the New York Mercantile Exchange (NYMEX) is open, and the market often sees high liquidity.
What are the 2 main types of energy futures? ›
Energy futures are derivative contracts with energy products as the underlying asset. Market participants can buy and sell energy commodities through energy futures at a predetermined future price and date. The most popular types of energy futures are based on commodities like crude oil, natural gas, and electricity.
Where are energy futures traded? ›
Natural gas futures contract specifications
| Exchange, Product Name, Symbol | New York Mercantile Exchange (NYMEX), Henry Hub Natural Gas Futures, /NG |
|---|
| Multiplier | 10,000 mmBtu |
| Minimum Tick Size and Value | 0.001 = $10.00 |
| Settlement | Physical1 |
| Trading Hours | From 6 pm ET Sunday to 5 pm ET Friday |
Oil futures contracts are simple in theory. They continue the time-honored practice of certain participants in the market selling risk to others who gladly buy it in the hopes of making money. To wit, buyers and sellers establish a price that oil (or soybeans, or gold) will trade at not today, but on some coming date.
Can you make money trading oil futures? ›
There are two basic positions in oil futures, as in all trading, long and short. A long position is when you buy the contract and you benefit should the traded price go up. Short is the opposite, where you sell it and make money if it goes down.
How much money required to buy 1 lot of crude oil? ›
One contract of crude oil is 100 barrels and it is priced at Rs. 2,50,000 (Rs. 2,500 per barrel); but you don't have to pay the entire money to buy a futures contract. You have to pay a margin of 5% which comes at Rs.
How long do oil futures last? ›
A futures contract specifying the earliest delivery date. For gasoline, heating oil, and propane each contract expires on the last business day of the month preceding the delivery month. Thus, the delivery month for Contract 1 is the calendar month following the trade date.
| WTI Crude | 82.33 | +0.53% |
|---|
| Natural Gas | 1.789 | -0.11% |
| Gasoline •15 hours | 2.696 | +0.38% |
| Louisiana Light •2 days | 87.12 | +0.03% |
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3 more rowsThe two most popular types are Brent Crude and West Texas Intermediate (WTI), which are traded on the Intercontinental Exchange (ICE) and New York Mercantile Exchange (NYMEX) respectively. They are used as benchmarks for global oil prices, as well as economic health.
Do oil futures affect gas prices? ›
In most cases, oil prices have an influence on gasoline prices and not the other way around, meaning that gasoline prices tend to lag the price of crude oil.
What is the best time of day to trade crude oil? ›
What is the best time to trade oil? Oil tends to hit peak volatility around major news releases (such as OPEC meetings). Alternatively, intra-day liquidity tends to be highest during the NYMEX's 'pit trading' session (9.00am-2.30am EST).
Do oil futures affect oil prices? ›
Market participants not only buy and sell physical quantities of oil, but also trade contracts for the future delivery of oil and other energy derivatives. One of the roles of futures markets is price discovery, and as such, these markets play a role in influencing oil prices.
How does the energy trading work? ›
Energy trading involves the buying and selling of energy markets. It is the process of investing in or speculating on the price direction of energy markets such as oil, gas and (renewable) electricity. The most commonly traded energy markets include: WTI Crude Oil - WTI is short for West Texas Intermediate.
What is an example of energy trading? ›
The most popular traded energy markets are US crude, natural gas and Brent crude. You can also trade carbon emissions, London gas oil, gasoline, heating oil and UK natural gas. It's possible to trade US crude and Brent crude, the most liquid energy commodities, nearly 24 hours a day, five days a week on our platform.
Is energy trading profitable? ›
It provides essential resources such as crude oil, natural gas, and electricity that power various industries and activities. The constant need for energy commodities makes energy trading a highly lucrative opportunity for different market players – from retail traders to big financial institutions.
How much do energy derivatives traders make? ›
The estimated total pay for a Derivatives Trader is $283,472 per year in the United States area, with an average salary of $148,492 per year.
