Percentage of the World's Oil on the Futures Market
Original post by Geri Terzo of Demand Media
Energy developers around the world continuously drill for new oil reserves. Subsequently, the size of the total oil market is somewhat fluid. Energy market participants have the choice to sell oil in the cash market, where deals occur with urgency, or in the futures markets. Oil that is traded in the futures markets is either delivered at a future date or settled for a price before a contract's expiration date. While the percentage of the world's oil traded in the futures market changes in response to known reserves, supply and demand, certain factors influence where and how oil trades.
In 2009, there were 1.3 trillion barrels of proven crude oil reserves in the world, according to the Organization of the Petroleum Exporting Countries. Oil is priced by the barrel and traded in groups of 1,000 barrels. The typical U.S. barrel size for newly produced oil is 45 gallons of oil, according to the U.S. Energy Information Administration. In August 2011, the price of U.S. crude oil was trending at slightly higher than $83 per barrel, according to the CNN Money website.
The price at which oil trades on the futures markets is largely determined by supply and demand. At the CME Group, a major U.S. commodity exchange, the price for each barrel of oil that is produced is determined by a price discovery method. Market participants determine the price in an auction process. Buyers place bid offers and sellers establish an asking price. The more demand there is the higher the price of oil per barrel becomes.
Oil futures trade on commodity exchanges around the world. More than half of the world's oil futures contracts were traded on the InterContinental Exchange in 2007, according to a 2009 article on the CBS News website titled "Oil Tradings Power 'Dark Markets.'" In 2007, there were approximately 138 million oil futures contracts traded, a nearly 50 percent spike from the previous year. In April 2011, there were some $26 billion in oil futures agreements in the markets, which set a record, according to the "Guardian" website.
In 2011, London was poised to outpace New York and become the center for oil futures trading, according to an article in Reuters, "London Wrenches Oil Trade Crown From New York." The shift in oil futures trading to Europe was driven in part by the increased market share attained by the ICE, which facilitates a large portion of oil trading throughout the continent. London is known for trading Brent crude, a type of oil, while the U.S. oil type is light sweet crude. Traders are increasingly preferring Brent oil.
- CME Group Press Contact: Chris Grams Associate Director, Commodity Products Phone: (312) 930-3435 email@example.com
- CBS News; Oil Trading's Powerful "Dark Markets"; Armen Keteyian ; February 2009
- Organization of the Petroleum Exporting Countries: The Oil Industry
- U.S. Energy Information Administration: Nonrenewable Oil (Petroleum
- CNN Money: Oil Market's 'Knee Jerk Reaction' To Libya; Aaron Smith; August 2011
- Reuters; London Wrenches Oil Trade Crown From New York; David Sheppard; February 2011
About the Author
Geri Terzo is a business writer with over 15 years experience reporting on Wall Street. Her coverage ranges from institutional investing, including hedge funds and investment banking, to family topics and her career experience includes work for Fox Business, CNBC and "IDD Magazine." Terzo is a graduate of Campbell University, where she earned a B.A. in mass communication.
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