How do you buy oil to sell to refineries (futures exchanges)?

Question

Ok long story short ill receive a sum of money in a few months when I turn 18. I will get a little more then 1 million dollars and I want to invest it wisely. How could I buy barrels of oils and sell them? Can you do it online like with stocks by using sites like TD Ameritrade or Etrade?

Answer 1

First of all, you are not ready for trading oil if you don't understand the function of the markets. I trade futures on occasion, and even after 8 years of profitably trading stocks and options, I find futures horribly difficult, because they are so leveraged. If you get started with your level of knowledge I predict you lose your 1M in 1 year, no joke!. Let me tell you a little about the market. First of all, unless you are a producer, you will never sell oil to a refinery. Refinery purchases are made in much larger figures than $1M and they are not made on the open market. They are made on phone calls and handshakes. Second, the futures market does allow you to take delivery of oil if you like, but then what will you do? No one will buy it back. Hope you have home refining capabilities. The futures market is where producers and refineries go to hedge their production or supply needs, not where they go for oil. They hedge with folks like you and me. In other words they use us to protect against risk. Regarding brokers, etrade does allow futures with a special account but I dont think you'd qualify unless you lie on your forms. You can go to interactive brokers. I use them. They will probably give you an account. However, I know that interactive does not allow delivery. If you have a contract that is coming up on delivery they will sell it on you, and roll into the next contract month. So, you will never own oil, except the right to take delivery on paper. That's the way the market works for non-commercials such as you and I. You can find brokers that allow you to take delivery, but I find they often are not electronic, but rather have a floor trader. If you are really sold on oil as an investment, I suggest looking at the oil futures etf that trades on the amex. The symbol is USO. Best of all, it is optionable so you can hedge because it is a very volatile animal.