I Have a couple of questions regarding the real spot price of oil and was hoping someone with some experience would help shed some light on the topic. I often hear about 'spot prices' but seems to be a lot less info on exactly what it is and how it is traded. How does this trade in relation to futures? Is this something that a serious energy trader follows? I assume that trading real spot oil would be beyond reach of the average retail trader ( and probably beyond their needs too) but I wonder if it something at least worth tracking in real time, if there is some edge to be gained by watching this in tandem with futures. Thanks in advance
front-month futures contract is the spot month contract. So right now the spot month is U3(September)
It's just like grains, trades at different prices in different markets, grades and delivery points. While bids for grains are transparent at local buyers, elevators, etc. I don't think it is so with oil for the lay person.
There is no spot oil. The physical market is basically a delivery market. It's about the cost of moving oil from point A to point B. Physical oil can trade at 100 different prices. The oil that is delivered into Cushing, OK is used to settle futures contracts on NYMEX. Oil that is NOT delivered into Cushing has a basis price. So someone in south Africa can buy oil that is sitting on a cargo ship in the middle of the Atlantic and have it delivered to Cape Town. They might quote a basis price relative to the deliverable in Cushing. But there are substantial costs involved to move this oil and that is why it trades at many different prices. If you are not in the physical market, it won't help you with the futures.
Thanks for the responses, sounds like looking at physical prices ( specifically Cushing even), would add no value to a speculative futures traders trading then... Something new learnt everyday!