Crude Oil Futures

The price of crude oil futures can be driven by any number of factors from changes in demand to interruptions in processing and refining. Gasoline, diesel fuel, jet fuel, home heating oil and a wide variety of other products require crude oil as a raw material. This commodity is traded on the New York Mercantile Exchange, or NYMEX. Many countries produce this valuable natural resource with the United States, Saudi Arabia, and Russia among the world's largest producers. This product must be refined before it can be used as gasoline or home heating fuel. Three barrels of this fuel are needed to produce two barrels of unleaded gasoline. The same three barrels will only produce one barrel of home heating fuel. Anyone who wishes to trade this valuable commodity will need to understand how crude oil futures work. Crude oil prices are often influenced by the current prices of home heating fuel and unleaded gasoline. Demand for the product can be a factor as well. Gasoline will generally experience its highest demands during the summer months. Of course, the highest demand for home heating fuel will occur during the cold winter months. Outside factors such as an interruption in the refining and production of this product can drive futures into higher ranges. Extremely cold weather can have the same impact on the price of home heating fuel and drive up future prices as well. Some organizations will frequently attempt to manipulate the price through deliberate cutbacks or interruptions in production.

Keeping an eye on crude oil futures can also mean discovering clues to how other aspects of the economy will function. Traders will bid on future contracts for the purchase of oil. This bidding will usually have a major impact on prices at the pump. Some of the factors that will influence this bidding can include the amount of output that a product can expect, basic supply and demand, the amount of product that is being held in reserve, weather forecasts that will have a bearing on the amount of home heating fuel that will be needed. A major crisis in the world can also have an impact on prices. The cost of crude oil futures can change on a daily basis. Traders who purchase contracts that carry a low price will make money if the price of the commodity suddenly and unexpectedly rises. Of course, the reverse is true as well. If the price of the product suddenly drops, a trader is likely to loose money on the deal, while the seller will profit. These contracts also contain agreements to store and deliver the purchased product. Values on important natural resources are established by this open market trading that is done by professional analysts and traders. Other commodities that are traded in a similar way include gold, wheat, pork bellies and other agricultural products.

Predicting crude oil futures can be a tricky art. Supply and demand will obviously play a very large role. But there are many other factors that can have a bearing on the future prices of oil. The largest percentage of the world's petroleum supply is controlled by an organization called OPEC. This alliance of countries was formed in 1960 as an attempt to regulate the worldwide price of fuel. These attempts at control may be accomplished through limiting the amount of product that is produced. In the United States, the government keeps a certain amount of the product in reserve. If for some reason supply should drop, the reserve can be tapped into as a way to keep prices under control. Natural disasters or political upheaval can interrupt the flow of this important product. The thinking behind setting aside a reserve of the product is to defray the damage to supply that can be caused by such events. Of course, this does not always work as it was originally intended. Demand for fuel in the United States will fluctuate for a variety of reasons. During times of the year when travel is limited or when the weather is warm will see a drop in demand. The trading of crude oil futures constitutes an agreement to sell the product at a future date for a specified price. This price is determined by what analyst think that the product will sell for in the future.

Gaining an understanding of crude oil futures can be helped by knowing just what crude oil actually is. Crude oil is unrefined and must go through a refining process before it can be used for energy purposes. Refiners will usually prefer the light sweet variety of this valuable natural resource because it tends to create the largest yield of of jet and diesel fuel as well as gasoline. The Bible talks about the fullness of the world that God created. "The earth is the Lord's, and the fullness thereof; the world, and they that dwell therein." (Psalm 24:1)

Setting a price for crude oil futures will obviously have a bearing on the price of gasoline. When gas prices are high, families will usually end up spending a large amount of their budget on making sure that their cars are fueled. This can mean that purchasing other types of goods will suffer. In the same way, as gas prices drop, family budgets have a little more leeway, allowing for purchases of other needed items. It is easy to see how the price of such a vital natural resource can have a major impact on everyday life.

Crude Oil Trading

Understanding crude oil trading can be greatly aided by learning about the various elements that go into setting the price of this valuable natural resource. These elements can include the OPEC Basket Price, the West Texas Intermediate price, and the Brent Blend. The OPEC Basket Price is basically an average of prices in a variety of countries including Mexico, Dubai, Nigeria, Saudi Arabia, Venezuela, Indonesia, and Algeria. The prices in this category are frequently lower. This may be due to the fact that oil from these countries may have a higher sulfur content, resulting in a lower yield when refined. West Texas Intermediate prices can be among the highest since the quality of the product tends to be higher as well. The weight of the product as well as the sulfur content are two factors that can determine quality. Higher quality products will generally turn out a better grade of gasoline. Brent Blend represents crude oil that comes from several fields in the North Sea. While product in this category will not usually be of as high a quality as that of West Texas Intermediate product, it is still a relatively high quality product. Other factors that are used to establish the price of gasoline can include the demand for the product, currency strength, and distribution and processing expenses. All of these factors can have an impact on crude oil trading.

The subject of crude oil trading is an important one since the price of this valuable natural resource can have a major impact on the economy of the United States as well as other countries. Oil is one of the most important commodities that are traded on the New York Mercantile Exchange, or NYMEX. Prices of light sweet crude oil are monitored on a daily basis. Any changes in these prices can have a major impact on the United States economy as well as the economies of other countries across the globe. Commodity traders will look at factors such as political conditions and supply and demand to try to predict what the price of various commodities will be in the future. When prices rise to high, inflation on the cost of other goods and services can be the result. Since most goods will need to be transported from the location where they were created, higher gas prices can mean that consumers will pay more for these goods at a future time. Conversely, lower gas prices can mean that a manufacturer will need to spend less money to ship goods to customers and will realize a larger profit. Hopefully, these increased profits will mean that a manufacturer will be able to offer the product at a lower price to consumers. While supply and demand and other factors can influence crude oil trading, the actions of futures and hedge fund traders have been also blamed for wide fluctuations in price.

Long before the days of crude oil trading, this natural resource played a major role. Petroleum as an important natural resource has been used for centuries for a variety of purposes. Many civilizations used it to fuel fires. Other uses included the creation of tar, which was widely used to pave streets in the Arab world. Distilled petroleum could be turned into important products such as kerosene for lamps. In some cases, the fuel was used as a means of waging war. The need for energy increased with the Industrial Revolution, although coal was the resource of choice at this time. In addition to coal, wood was also a popular fuel for home heating. In the nineteenth century, Russia became a major producer of oil and crude oil trading took on a new dimension. By the time that the twentieth century rolled around, Russia was producing nearly one half of the world's petroleum supply. Drilling for this valuable natural resource began in the United States at around the middle of the nineteenth century in Pennsylvania. With the passage of time, the oil producing giants in the United States began to emerge with wells in Louisiana, Texas, and a variety of other locations. Today, not only are gasoline and home heating fuel supplies dependent upon these industry giants, but a wide variety of modern products are derived from petrochemicals. Most plastics and a large number of cosmetics and paint products require petroleum for production.

The impact of crude oil trading on gas prices is offset in some countries by subsidized gas prices. While such actions can reduce the cost of transporting goods and be generally helpful to the country's economy, there can be drawbacks. Consumers are far less likely to conserve fuel when prices are low. As prices fluctuate, the need for subsidizing gas prices will most likely decrease. The Bible encourages believers to always be mindful that God is the creator of the universe. "Remember now thy Creator in the days of thy youth, while the evil days come not, nor the years draw nigh, when thou shalt say, I have no pleasure in them." (Ecclesiastes 12:1)

No discussion of crude oil trading would be complete without looking at the impact that this industry can have on the environment. Fossil fuel combustion has been known to send pollutants and green house gases into the atmosphere. Water sources have faced pollution as well through spills and refinery by products. While the need for this valuable resource cannot be disputed, methods for reducing negative environmental impacts are important. Alternative sources of energy are also being explored and may hold crucial answers to this dilemma.





Copyright© 1996-2015 ChristiaNet®. All Rights Reserved.