This article will discuss supply and demand, NYMEX margin requirements, financial speculators, and thermal cracking. By the time you’ve finished reading this article, you should have a basic understanding of oil. Then you can learn about the futures market and how it affects oil prices. Thermal cracking and NYMEX margin requirements are the two primary factors that impact oil prices.
Supply and demand
As we all know, the law of supply and demand plays a role in determining how much oil is available on the market. Historically, oil production in OPEC countries has controlled oil prices, but the United States has taken a more significant role in determining oil supply in recent years. American shale oil production has been growing fast, and Saudi Arabia had not cut back on its oil production since 2014.
Increasing oil prices have increased transportation costs, putting a strain on supply chain partners. As a result, companies resorted to alternative methods of transportation that would have taken weeks or months. This added cost could have affected profit margins or caused companies to cut costs somewhere else in the supply chain. If oil delivery Haskell NJ prices continue to rise, the companies might be forced to raise prices or pass on the costs to their customers. In either case, they would end up with lower profits.
The rate of thermal cracking is first-order in a good approximation for higher hydrocarbons such as propane and butane. Similarly, the yield of light products depends on the frequency of the cracking reactions. This dependence is explained mainly from the viewpoint of traditional technology. The primary outcome of these reactions is the formation of gasoline and diesel fractions. Optimal optimization and hydrogen balance are critical factors in achieving the best yields of intermediate products. Further depth in the cracking reactions yields gaseous hydrocarbons and coke.
Cracking is the most widely used process to convert heavy hydrocarbons into lighter ones. A cracking unit consists of tall, rocket-shaped reactors and a network of vessels. In a complex, crackers may include fluid catalytic cracking and hydrocracking/hydrocracker. In addition, other processes at the refinery molecules restructure to add value.
NYMEX margin requirements
Traders must maintain a specified amount of equity in their account to trade on futures exchanges. For example, the margin requirement for NYMEX crude oil futures is $2,900 or $3,400 per contract. Whenever a trader experiences a loss, they must deposit additional funds in their account to cover the shortfall. Similarly, traders who wish to buy futures contracts for oil delivery but are unable to meet the requirements need to use a margin account.
The first month on the board is called a spot month. After the first trading day, NYMEX margin requirements start to rise, and players are encouraged to shift out of a delivery month. High volume contractual agreements dictate that petroleum products and crude oil will be delivered within a certain period, usually a week or two, for a preset sales price. This type of market gives traders a good indication of the wholesale price trends.
The financial market is susceptible to speculation, driving up oil prices. Since oil is traded on futures markets, which are not regulated, speculators can take significant positions in the market, allowing them to control the price of oil. This lack of oversight can lead to manipulative practices by speculators.
In a recent 60 Minutes segment on oil markets, law professor Michael Greenberger described how futures had manipulated the oil market. He noted that roughly 60 to 70 percent of oil contracts are held by speculative entities rather than companies that need oil. These entities are in it for the money, not for the benefit of consumers. This is problematic for many reasons. As a result, he urged lawmakers to regulate commodity trading to make markets more transparent.