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Some Fundamentals of Oil Futures

Aug 17, 2007
Oil futures refer to pertinent situations of the oil market on different levels. It can be read literally, as in the future of the oil world and supply, or else it can also be read for its other meaning, that on the commodity market of oil.

Futures of oil can refer to future expected selling price of oil on the market. At any given time of the year, a selling price of the commodity can be speculated on and determined for a time in the future. Usual time lapses between the speculations vary between six months to one year.

For example, in December, the price of oil for the coming July can be speculated upon, and a futures contract is then drawn, whereby the oil seller is agreeing to sell his amount of oil to a seller for such and such estimated price in July. This contract is binding, and the seller has to sell at the agreed price on the given contract date, irrespective of the actual market price of the commodity.

The laws of demand and supply are driving forces of the oil futures market. Speculation also forms a big part of the transactions, but this too obeys to market laws. Demand for oil is always on the up or even constant, whereas supply on the hand is decreasing. Economic, political, and geo-political concerns all enter into the scope of the supply side of the oil market. When one combines these myriad factors with the tightening of supply recorded recently by oil-producing countries, along with the dwindling supply of available oil reserves, it makes for a very unstable and not easily predictable market ground.

However, this rather serious supply situation, along with the fact that there is an absence of supply growth of the commodity, is no deterrent for certain buyers. Some may be buying for insurance, whereas others like airline companies may be buying to ensure their own stocks. Speculation does not really enter the realm here, since these buyers do allow for some margin in their transactions. But the idea is definitely to make sure there is a profit to be realized, no matter how the situation progresses.

Oil futures however render the market very fluctuating. Increases in the price of oil are constantly being touted, however no one can predict for sure by how much the price will go up. This then leaves the door wide open for maneuvers within the parameters of the futures market.
About the Author
Mayoor Patel is the writer for the website http://oil.oil-universe.com. Please visit for information on all things concerned with Oil Futures
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