Inside the Futures Contract for Energy Investing - dummies

Inside the Futures Contract for Energy Investing

By Nick Hodge, Jeff Siegel, Christian DeHaemer, Keith Kohl

Energy investors can think of trading futures as the transfer of risk from the producers (the ones doing the hedging) to the speculators. It’s the most effective way to mitigate price volatility because the standardized contracts are only bought and sold on regulated exchanges.

The New York Mercantile Exchange, or NYMEX, is home to the energy complex, and it’s where you find listed futures contracts for crude oil, gasoline, heating oil, and natural gas. In 2008, CME Group purchased the NYMEX in a cash and stock deal. By September 2009, the NYMEX was fully integrated into CME Group.

Along with Commodity Exchange, Inc. (COMEX), on which you can trade precious metals futures, CME Group is also composed of the Chicago Board of Trade and the Chicago Mercantile Exchange. It’s officially your one-stop shop for trading futures and options.

The Intercontinental Exchange, also called ICE, is a bit different from CME group insomuch that futures contracts are bought and sold over the counter, meaning that all the transactions are conducted over the Internet.

You can find more information regarding these two exchanges on their respective websites:

This table provides a list of contracts for oil, natural gas, and refined products that gives you a starting point for your futures investments.

Structure of Oil and Gas Futures Contracts
Exchange and Product Symbol Contract Size Settlement Type
NYMEX Light Sweet Crude Oil (WTI) CL 1,000 barrels Physical
Henry Hub Natural Gas Futures NG 10,000 million British thermal units Physical
RBOB Gasoline Futures RB 42,000 gallons Physical
New York Harbor No. 2 Heating Oil HO 42,000 gallons Physical
E-mini Crude Oil Futures QM 500 barrels Financial
E-mini Natural Gas (Henry Hub) QG 2,500 million British thermal units Financial
ICE Brent Crude Futures B 1,000 barrels Financial
ICE WTI T 1,000 barrels Financial
ICE RBOB Gasoline 1st Line Future RBS 1,000 barrels Financial
ICE Henry Hub Natural Gas HEN 2,500 million British thermal units Financial