What is oil futures trading?
Oil futures trading is the act of buying and selling crude oil futures. Traditionally, you’d trade crude oil futures if you were an oil producer or used oil as an industry input. The contracts remove uncertainty the from future prices, thereby lessening risk. 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. So, if your speculation is correct, and the spot price moves (as per your prediction) to $140 by expiry, you’d earn a profit of $8 per barrel on settling the contract. If, contrary to your prediction, the spot price drops to $120 by expiry, you’d have made a loss of $12 per barrel.
