[AnimalMuppet]

If you get into the market for physically settled contracts with no intention of taking delivery, then you're almost certainly a speculator. I'm not sure that it's the market's job to make that safer for you.

I am not justifying inaccurate pricing. Burning speculators is fine, but give everyone accurate information.

[centimeter]

> If you get into the market for physically settled contracts with no intention of taking delivery, then you're almost certainly a speculator.

Hard disagree. There are lots of reasons people with legitimate hedging concerns who don't intend to take physical delivery prefer the physical contract to a CSC (if it's even available).

[AnimalMuppet]

Would you list some of those reasons, instead of just making the bare assertion?

[centimeter]

* Higher liquidity, lower slippage

* Different regulatory capital requirements

* Some commodities don't have cash settlement

* Sometimes a CSC doesn't count (as much) from a regulatory/insurance perspective if you're hedging a position in a commodities basket or whatever

I'm sure there are more - I don't work in commodities.

[TuringNYC]

These futures contracts are for delivery at a specific location. What if you just dont want a million barrels 2000 miles away? Cash settled seems a lot more flexible for lots of industrial use.

[vardump]

Or possibly someone who needs large amounts of oil and want to hedge against fluctuations?

Freight industry, airliner, etc.

[AnimalMuppet]

If you need large amounts of oil, then either you plan on taking physical delivery, so you can just let the contract expire, or you don't plan on taking delivery of that oil, in which case you want cash settlement contracts.

[thoraway1010]

Good lord, if you actually need the oil, then take delivery!

The issue here is total speculators using PHYSICALLY settled contracts to speculate who don't want delivery.

The number of people who need WTI are pretty few - refiners and some small others. Seriously - with WTI you still need to refine it - airlines CANNOT just load WTI into their tanks.

These sob stories from folks who supposedly were bidding to take delivery of physical oil (unrefined) from a condo somewhere are ridiculous.

To trade futures you need to certify you understand them. I'd love to see the form this guy filled out listing what was likely a fair bit of bogus experience.

I'm fine with all these idiots getting burned.

[CydeWeys]

Airlines buy futures in Jet A or Jet A-1. They have no interest in crude oil because they aren't refiners and they have nothing to do with it.

The freight industry will similarly buy futures in bunker fuel, diesel, or whatever exactly they use to fuel their vehicles. Again, they're not refiners and have no use for raw crude.

It's the oil refiners that buy futures in crude. Well, them and speculators.

[centimeter]

> Airlines buy futures in Jet A or Jet A-1. They have no interest in crude oil

It doesn't matter. Airlines absolutely buy crude futures to hedge against changes in fuel cost. It might be impossible to buy futures in the exact good you need, or it might be too expensive due to illiquidity and slippage.

It's like how beer manufacturers buy aluminum futures even though they almost never take delivery on the futures. They're just going to buy the processed aluminum from their regular processed aluminum supplier, but they can still hedge some of the price changes with the easily available physical aluminum futures.

[CydeWeys]

There are jet fuel futures. If they speculate on crude and then jet fuel itself goes up because e.g. a big jet fuel refinery blew up, they're screwed, because the crude future didn't actually hedge against the specific problem they're facing, and now they have to pay a lot more for jet fuel. Or it could be any other problem that specifically affects jet fuel but not crude in general.

Anyway, as usual, Wikipedia has a relevant article, and it seems that airlines do both: https://en.m.wikipedia.org/wiki/Fuel_hedging

[tempestn]

That would seem counter to, "with no intention of taking delivery," from your parent's comment.

[evanpw]

The contract is for a particular kind of crude delivered at a specific location. Most hedgers would still be better off closing the futures contract and taking the delivery they actually want instead.