WTI Crude Oil Futures
- 1st paragraph: Having a locally-traded WTI contract will also provide a valuable new risk management tool to the shipping industry, which can reduce their exposure to the volatile bunker and diesel prices.
Locally traded WTI contract offer a better opportunity to local and international investors to do business on an online platform at a prevailing market place. The model of the contract, therefore, mitigate the cost of doing business and low prices of diesel. The amalgamation of WTI, Brent, and Middle East Sour Crude in a single exchange platform reduces the collateral requirement for investors as well as offsetting the margins of crude oil (WTI Crude Futures). This necessitates for competitive oil prices across the globe. In addition, WTI contract offer incentive to shipping company as they are able to monitor the freight rate throughout the year. The single platform thus enables the shipping company to order and deliver crude oil at relatively cheaper price.
- 2nd paragraph: The benefits of a WTI contract for investors: given the WTI Price’s negative correlation to equity and many other asset prices, by allocating a small part of their investment portfolio to WTI futures, they can improve their risk adjusted rate of return.
WTI futures are a leveraged investment that allows investors to buy contracts at a reduced price of about 10% of the contract value. First, investors do not pay the actual price of the contract. However, at the time of selling the commodity, a person profits are multiplied by tenfold on a 10% deposit. Thus, futures offer an excellent return on equity compared to other commodities such as minerals and crude oil (Geman 124). Second, WTI contract futures enable investors to buy a lot of goods compared to buying outright in the market. People in business who predict the correct movement of the market in the future leap substantial returns. Thus, allocating investment portfolio to WTI futures helps to improve risks and the rate of return (Dunsby 51). Therefore, investors of crude oil have leverage in the amount they can spend buying WTI futures and spare huge resource in the circumstance of a wrong prediction.
Dunsby, Adam,et al.Commodity Investing: Maximizing Returns Through Fundamental Analysis. John Wiley & Sons, 2008.
Geman, Helyette. Risk Management in Commodity Markets: From Shipping to Agriculturals and Energy. Wiley, 2008.
WTI Crude Futures. Theice.com. The ICE, n.d., https://www.theice.com/products/213/WTI-Crude-Futures. Accessed 30 July 2017.