Question:

How do speculators make money with oil futures?

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I guess that speculators make a profit if future price is higher than current spot price. But when current spot price moves instantaneously with futures price, what is the profit margin for speculators wth oil futures?

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  1. They are betting out a price in the future. Spot price is only the price at the moment. Futures prices are typically higher because there are actually companies that need the oil delivered not just to speculate on the price, ie Delta Airlines. Currently the price is around $130, but a futures contact 2 years from now can be as high as $200. Someone thinks that $200 is a good price, maybe the spot price in the future will be $300, therefore they get a discount of $100.

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