Question:

What does it mean to "take delivery" of oil?

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In the ongoing discussion about who's to blame for the oil crisis, I've heard them discussion on CNN whether or not certain speculators are taking delivery of oil. What does that mean?

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2 ANSWERS


  1. When you buy a future contract, in this case oil,  you have the option of closing out the contract before the delivery date or of taking delivery of the contract on the delivery date.  If you choose to take delivery what happens is you get the oil.  It is in a storage location.  The only problem you will have is paying the monthly storage fees to store the oil until you sell it.  Of course you have the option of writing a future contract against it and delivering it to someone else. There is a charge for taking delivery that the broker will charge you because there is paperwork involved.


  2. Basically they are talking about it in an attempt to try to get an idea of how speculation trading there is in the commodity.

    Originally options were created to sell future production of the product. A farmer could lock in a price. It was intended to stabilize the prices. It was meant as a mechanism of actually buying and selling the item. It still is.

    The refiners are buying the oil to refine. They put in an option and pay the balance when it is delivered.

    Those that are buying the option then NOT taking delivery by selling the option before the option closing date are the speculators.

    They are only trying to figure out who is who and how many are just trading options, but not really buying oil.

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