The New York Mercantile Exchange (NYME), is the world's largest commodity futures exchange. In addition to trading oil futures, it trades agricultural, livestock, metal and other energy forms. The primary function of the exchange is to reduce the risk of counter-party default by acting as a clearinghouse for every trade. To be clear, however, oil futures prices are the collective opinion of the market not NYME, and provide a general direction for where oil prices will be in the future.
Futures Contract
An oil future is a contractual agreement to buy or sell oil in the future. To be clear, the term "oil futures" is the same as an "oil futures contract." The contract will detail the quality and quantity of the underlying asset. Some oil futures contracts may call for physical delivery of the asset while others are settled directly in cash. The contract will specify delivery instructions. See Resources for an example of the crude, oil and natural gas contracts.
Crude oil
Crude oil is an example of an oil future traded on the NYME. Prices are quoted in U.S. dollars by the barrel. Contracts are sold in 1,000 U.S. barrel lots (42,000 gallons). Crude oil futures are listed nine years forward and consist of domestic crude, such as West Texas Intermediate, Low Sweet Mix, New Mexican Sweet, North Texas Sweet, Oklahoma Sweet and South Texas Sweet. The trading symbol is CL.
Heating Oil and Natural Gas
Heating oil futures, like crude oil, are quoted in 42,000 gallon lots and in U.S. dollars. It is traded for 36 months forward under the symbol HO. Henry Hub natural gas futures are slightly different than crude and heating oil futures. They trade in 10,000 million British thermal units (mmBtu). They are also traded in U.S. dollars, 12 years forward. The Sabine Pipe Line Co. Henry Hub is responsible for the movement of the gas through the hub both going and coming. The trading symbol for natural gas is NG.
