About The New York Mercantile Exchange
The New York Mercantile Exchange (NYMEX) was founded in 1872 to trade contracts in butter and cheese. Today it is the major U.S. exchange on which crude oil, heating oil, gasoline, natural gas and propane are traded. Only contracts for future months are traded on the NYMEX. So, for example, if you are reading this article in June 2005, the first available contract is July 2005. As soon as the month of June ends, the July contract goes off the board and August becomes the near month contract.Heating oil contracts are sold in 42,000 gallon increments, which is the equivalent of 1,000 barrels at 42 gallons per barrel. These contracts are paper contracts representing hypothetical delivery in New York Harbor. Approximately 99% of the contracts are canceled before delivery is taken.
When energy contracts first began trading in 1978, the major oil companies laughed at them, believing that they would never have a significant impact on prices. Today there is no question that consumer price levels are directly affected by daily trading activity on the NYMEX. Speculators like hedge funds are heavily involved in trading of these contracts. These speculators have caused wide swings in energy prices, increasing what is known as the volatility of the market. This increase in volatility has dramatically increased the premiums for both upside option contracts (calls) and downside option contracts (puts).
In short, the NYMEX is here to stay. Whether the daily trading on the exchange is helpful or detrimental to the prices we pay for the energy we use each day is open to debate. For more information on the NYMEX, log onto their website at www.nymex.com.
