Delivery of WTI futures

A key feature of WTI Crude Oil futures at CME Group is that they’re physically delivered. If a trader has a long or short position in the nearest futures contract at the end of the month, they will have to make or take delivery of actual Crude Oil at the WTI delivery point in Cushing, OK.  

CME Group obliges traders to make or take physical delivery to ensure the prices of the nearby futures market can't get out of line with prices in the underlying physical market. Physical delivery means that a futures position is turned into real oil. In technical terms, the futures and the physical will converge at the end of the trading month. 

This transfer from buyer to seller happens in Cushing, OK, one of the largest Crude Oil storage sites in the world. The Cushing physical delivery mechanism is comprised of a network of nearly 24 pipelines and 15 storage terminals, which is why it's often called the pipeline crossroads of the world.  

Its massive storage capacity is a major advantage for the WTI Crude Oil futures contract and a significant factor in its success as a benchmark. Its ability to store oil is crucial for traders. Traders aim to take advantage of times when the current price of oil is lower than the futures delivery price in a market structure called contango. These market conditions can make it profitable for traders to buy oil and hold it in storage until prices recover. 

While people outside the oil markets usually look at a single month, oil traders pay close attention to the relationship between different months. The shape of the curve is determined by peoples' estimates of whether the supply and demand balance will change from where it is today. This then tells traders whether they will make more money selling oil today or if they should put it into storage to sell later. 

Storage plays such a key role that traders will pay top dollar for data about how full Cushing storage tanks are through tools like helicopters, satellite imagery, and pipeline sensors. For those without the resources to fund this type of data collection, there are publicly available alternatives.  

In the U.S., the Energy Information Administration (EIA), releases data every Wednesday measuring the weekly change in the number of barrels of commercial Crude Oil held by U.S. firms. This is one of the most beneficial resources for anyone looking to trade WTI, as the report is an indicator of the likely short-term direction of trading. If the EIA reports that there's more oil in storage than the market expected, this implies weaker demand and can be bearish for Crude Oil prices. If there's a slower build in storage or an unexpected decline in inventories, this implies greater demand for oil and can be bullish for Crude Oil prices.