Comment by timewizard
13 hours ago
Futures contracts are actually somewhat interesting in how fully they are specified. If you want to see how Light Sweet Crude Oil Futures are delivered, that's covered in the NYMEX Rulebook, Chapter 200:
13 hours ago
Futures contracts are actually somewhat interesting in how fully they are specified. If you want to see how Light Sweet Crude Oil Futures are delivered, that's covered in the NYMEX Rulebook, Chapter 200:
I never really understood the "with delivery in Cushing, Oklahoma" thing, and the Delivery section on page 3 doesn't make it too much clearer.
Surely there are people trading in these contracts that... don't want their oil delivered to Cushing? The Delivery section makes it sound like maybe it can be delivered somewhere else if the buyer and seller agree, maybe?
And Wikipedia does make it sound like Cushing really can be a bottleneck: https://en.wikipedia.org/wiki/Oil_industry_in_Cushing,_Oklah... But... how? It seems like such a bizarre setup to literally require all the oil to come to this one specific town, I assume I'm missing something obvious?
> Surely there are people trading in these contracts that... don't want their oil delivered to Cushing?
A big-enough buyer will know how to get oil from Cushing to their facility, often by pipeline. One who doesn't really want oil in Cushing is likely to close out their futures trade before the settlement date, treating it like a purely financial transaction.
> It seems like such a bizarre setup to literally require all the oil to come to this one specific town, I assume I'm missing something obvious?
Futures contracts need to be based on the price of something, but the price of a physical good depends on location. Delivery of a barrel of crude to the South Pole would be much, much more expensive – and more variable – than delivery to a big oil terminal. Contracts for physical goods need some kind of agreed-upon reference point, even if most of the time things get financially settled without delivery.
Hm, makes sense. Thanks!
This level of standardisation is indeed what makes them so liquid and useful!
Oil is usually considered fungible.
Fungible is a word that sounds weird and I don’t get to say often enough.
To the first approximation, yes. But there are different standards for oil and they trade at different prices (e.g. Brent is more expensive than Urals).
Like commodity I suppose it also gets used to describe things that may not be 100% fungible but may be pretty close depending on the details and the circumstances.
If you are looking for more opportunities, recall that the difference between entities and value objects in domain-driven design is that value objects are fungible.