Oil futures trading refer to the process of trading oil contracts in a futures market with the aim of earning profits along the way. In this sense, those who are involved in futures oil trading is not really concerned with the actual oil that is the basis of the trade, but they utilize the movements of capital and fluctuations in the market to gain something out of it. Oil futures trading is a good market to trade nowadays because the reality is that the world is still primarily oil-dependent and it will not likely to change for sometime. This means that oil is still going to stay a liquid asset that you can trade at any time of the day.
The futures trading system was utilized a long time ago when sellers of commodities like farmers pledge a certain amount of goods to a dealer that will be delivered at a fixed future date. However, when the seller encounters a certain kind of problem in producing the required amount of goods before the delivery date, for instance a drought, that person would sell the futures contract to another farmer who has the ability to fulfill the terms of the contract to the dealer.
As contracts changed hands, people noticed that the different variables in the market affected the prices of these futures contracts. Soon, people who are not really invested in acquiring the goods involved in the futures contract got involved in the trading of them in order to gain some profits off them before the actual exchange of goods materialize. These people are called speculators as they predict the movements in the markets and try to make use of this knowledge to make decisions on what to do about their assets that are “on paper”.
Oil futures trading applies this concept of futures trading system on oil barrels. Basically the commodity basis of oil futures trading is crude oil. It is because crude oil is an unprocessed commodity that can be further converted into various forms by numerous industries. This is also what makes oil futures contracts a very liquid asset since a lot of companies will be surely involved in the actual exchange of these goods.