Derivatives and Risk Management in the Petroleum, Natural Gas, and Electricity Industries

Table S2.  Example of an Oil Futures Contract

Date

Prices per Barrel

Contract Activity

Cash In (Out)

WTI Spot

December Future

January

$26

$28

Refiner “buys” 10 contracts for 1,000 barrels each and pays the initial margin.

  ($22,000)

May

$20

$26

Mark to market:
(26 - 28) x 10,000


  ($20,000)

September

$20

$29

Mark to market:
(29 - 26) x 10,000


   $30,000

October

$27

$35

Mark to market:
(35 - 29) x 10,000


   $60,000

November (end)

$35

$35

Refiner either:
(a) buys oil, or
(b) “sells” the contracts.
Initial margin is refunded.


($350,000)

  $22,000

Source: Energy Information Administration.