Crude Oil Futures and Options Trading

Crude Oil Futures

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Crude oil futures are the world's most actively traded commodity. Over the past decade, the NYMEX Division light, sweet (low-sulfur) futures contract has become the world's most liquid forum for trading, as well as the world's largest-volume futures contract trading on a physical commodity. Because of its excellent liquidity and price transparency, the contract is used as a principal international pricing benchmark.

Light, sweet crudes are preferred by refiners because of their relatively high yields of high-value products such as unleaded gas, diesel fuel, heating oil, and jet fuel.

Middle East Crude Oil Futures Contract and Index

The contract is for cash settlement based on an average of the value of Dubai and Oman crude oil as reported by various price reporting services. These price reporting services include: Bloomberg, ICIS-LOR, Petroleum Argus, Reuters, RIM Intelligence, and Telerate. The NYMEX uses price assessments reported by each of these services to calculate the Middle East crude oil index for each global business day (provided that at least three services publish price assessments for that date). The index is published by the Exchange on the first business day following the trade date. The final settlement of the sour crude oil futures contract is the average of all index values published during the delivery month.

The Futures Contract

NYMEX Middle East contract trades with prices quoted in dollars and cents per barrel ($00.00/bbl) and a contract unit of 1,000 barrels. The max/min price fluctuation rules are consistent with the Exchange's light, sweet crude oil futures contract as are settlement procedures up through the termination of regular trading, which is the final business day prior to the delivery month. (e.g. September 30 for an October contract).

The Index

Each of the price reporting services provide multiple price assessments for Dubai and Oman crude throughout the global trading day; some more than others. The average of all of the intra-day Dubai assessments and the average of all of the intra-day Oman assessments of each price reporting service is used for calculation of the index.

For each business date during a contract month, the index is calculated (see formula below) and published on the following business day by 10:00 A.M. NYT on the Exchange website (www.nymex.com). In addition to publishing the Dubai component, the Oman component, and the index each day, a running average of the index is published, and is the basis of marking-to-market calculations for variation margin payments on positions carried to final settlement. The final settlement is determined on the final business day of the contract month.

MEC Index Daily Calculation (formula)

* Remove outliers (high and low) if there are at least five contributions
  Index is not published if there are fewer than three contributors

Crude Oil Futures Options Contract Specifications

See also: Crude Oil Futures Options Trading Special Report