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Question on buying oil

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Question on buying oil

Unread postby cubes » Mon 29 Aug 2005, 16:23:46

I was curious - i may have this all wrong if so tell me :-D

Oil is bought for delivery a few months in advance isnt it?

What happens if I buy that oil now but when the time comes the oil doesn't exist (not enough production or something like that).

What happens then?
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Re: Question on buying oil

Unread postby Dukat_Reloaded » Mon 29 Aug 2005, 17:04:29

I'm not sure how that could happen, but if that does happen, I think you would be stuffed.
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Re: Question on buying oil

Unread postby cube » Mon 29 Aug 2005, 17:11:52

$this->bbcode_second_pass_quote('cubes', 'I') was curious - i may have this all wrong if so tell me :-D

Oil is bought for delivery a few months in advance isnt it?

What happens if I buy that oil now but when the time comes the oil doesn't exist (not enough production or something like that).

What happens then?
What a strange screen name you have. [smilie=bduh.gif]
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Re: Question on buying oil

Unread postby Ming » Mon 29 Aug 2005, 17:34:38

If that is about to happen you can close your position before trading in that contract terminates.
(Its all in the price of that closure operation... :wink: )

Note that futures positions are always balanced (the number of bought contracts is the same of sold contracts...).
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Re: Question on buying oil

Unread postby cubes » Mon 29 Aug 2005, 18:28:49

Ok thanks. I've never invested in oil but the thought came to me that they are taking an educated guess at their future production before selling it and might get it wrong.
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Re: Question on buying oil

Unread postby MicroHydro » Mon 29 Aug 2005, 19:24:19

Most contracts are settled with cash. Note the NYMEX contract size is $1000 barrels, or over $60,000 at every contract date. This is not penny ante poker, more like the world series of poker.
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Re: Question on buying oil

Unread postby GoIllini » Mon 29 Aug 2005, 23:16:12

$this->bbcode_second_pass_quote('cubes', 'I') was curious - i may have this all wrong if so tell me :-D

Oil is bought for delivery a few months in advance isnt it?

What happens if I buy that oil now but when the time comes the oil doesn't exist (not enough production or something like that).

What happens then?


The exchange guarantees delivery. Mercantile exchanges have survived, wars, famines, great depressions, and even most government overthrows.

Unless the country goes communist or we have a full-scale nuclear war, you can count on the exchange to deliver your oil.

$this->bbcode_second_pass_quote('', 'M')ost contracts are settled with cash. Note the NYMEX contract size is $1000 barrels, or over $60,000 at every contract date. This is not penny ante poker, more like the world series of poker.

I think that these days, they're also setting up various oil future funds that allow investors to basically own oil by buying and selling futures.

The overhead's going to be pretty expensive, but it might be worth a look. Keep in mind that these holdings are going to be almost as intangible to you as 50 shares in an oil company might be, though. That is, you probably won't be able to call up the fund and say, "I'd like 50 barrels of oil delivered to my storage tank on Tuesday," like you could with NYMEX.
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Re: Question on buying oil

Unread postby cubes » Tue 30 Aug 2005, 16:15:12

Thanks :)
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