Oman Crude Oil Futures Contract Essay

1. tack Dubai Mercantile Exchange2. Trading Unit 1,000 U.S. barrels (42,000 gallons)3. Contract Value The contract foster shall be the last-place small town Price multiplied by one and only(a) thousand (1,000) multiplied by the number of Contracts to be delivered4. Price character reference U.S. dollars and cents per barrel5. Trading Symbol OQD6. Trading Hours Electronic trading is splay from 1600 CST/CDT Sundays and from 1700 CST/CDT Monday to Thursday and closes at 1615 CST/CDT the conterminous day, Monday to Friday. 7. Trading months The current year and the next five years result be listed. 8. Minimum Price Fluctuation $0.01 (1) per barrel ($10.00 per contract)9. Daily Settlement A daily OSP colony scathe ordain be create as at 1630 Singapore time. This bell represents the charge average set of trades in the nearby Contract Month mingled with 1625 and 1630 (Singapore). The DME will also publish an end of trading day settlement value for all listed Contract M onths, determined as at 1330 CST/CDT, which coincides with the end of the trading day for NYMEX Light Sweet ever finishing(a) Oil.This latter settlement price is used by the Clearing hearth to calculate daily variation margin on all apply DME Contracts. 10. Final Settlement Price The Final Settlement Price for a Contract Month shall be the OSP settlement price on the last Trading Day of the Contract Month. This price represents the weighted average price of trades in the nearby Contract Month between 1615 and 1630 Singapore Time. The Final Settlement Price will be used for purposes of margins for economy of the Oil. 11. prevail Trading DayTrading in the nearby Contract Month shall cease on the last Trading Day of the second month preceding the Delivery Month. 12. Settlement Type Physical13. Delivery F.O.B at the Loading Port, consistent with current terminal operations. Complete delivery rules and commissariat are detailed in Chapter 10 of the rulebook. 14. Governing Law incl ine LawThe afterlife price always fulfills towards the spot price. From the formula side, future tense quote F=S0 (1+(r+a)T), S0 is the spot quote, r is the interest rate for the future months, a is the cost of carrying. As it comes closer to the delivery day, T becomes smaller. On the different hand, the cost of storage and the interests of loans reduce as time goes by. Therefore, S0(r+a)T decreases. When it is the delivery day, which means that T equals to 0, S0(r+a)T =0, and the future quote F=S0.On the other side, there are always different opinions for investors. For the crude fossil crude futures contract, if an airline company wants to buy a large amount of crude vegetable vegetable oil at a fixed price in the future, it will presently buy crude oil futures to hedge the risk of fluctuation of oil price. Meanwhile, there may be many speculators who expect that the oil price in the future will go down, thus they will soon sell crude oil futures. Due to massive specula tions in the futures market, the futures price and spot price become similar as time goes by.For example, on 11/13/2012, I sell 10 contracts of 6-month crude oil futures, which will be delivered on 5/13/2013, and the spot price is 103.14 $/ barrel. Suppose the interest rate for 6 months is 2%, and cost of carrying is 1% of spot price, The nominal amount of 10 contracts is ten thousand $. The price of the futures should be F=103.14(1+(1%+2%)*0.5)=104.69$. If the futures settlement price traded on the market immediately is 115$, the quantity that should be delivered is Q=10000/115=86.96 barrels. 1. I shoot to borrow 103.14* 86.96=8968.70$ for 6 months.2. Buy 86.96 barrels crude oil. 3. Store the oil for 6 months, cost of storage is 8968.70*1%*0.5= 44.84$ 4. After 6 months, I deliver the oil at 115$/ barrel and receive 10000$. And I pay loan interest, which is 8968.70 (1+2%*0.5)=9058.38$ 5. The arbitrage is 10000-44.84-9058.38=896.77$, which is a gain.In this case, I suppose that th e futures price is higher than spot price, and speculators are unstrained to buy underlying asset, and sell futures contract in order to apply profits. As a result, the spot price will go up while the futures price will go down. Finally, the futures price will converge to the spot price of underlying asset.When the futures price is lower than spot price, and speculators will buy futures contract, and sell underlying asset in order to unclutter profits. In this way, As a result, the spot price will go down while the futures price will go up, and finally the futures price will converge to the spot price of underlying asset.