1) It is January 1 and you are refiner planning to purchase 1000 barrels of light sweet crude oil on March 25. You find there are no light sweet crude oil futures contacts with a March 25 maturity. So instead, you enter into a single futures contract on the NYMEX exchange to buy 1000 barrels of light sweet crude oil at $55.24/barrel for March 31 delivery. On March 25 you plan to unwind your long futures position and purchase the 100 barrels of oil at the then current market (spot) price.

Suppose the futures price on March 25 is $56.50/barrel and that the spot price on March 25 is $57.00/barrel.

What is the basis?

What is the gain or loss on the futures contract?

What is the net amount you paid to purchase the oil?

Did the basis work in your favor or against you?

Hint: Calculate these numbers for one barrel first and then for 1000 barrels

Answer rating: 100% (QA)

To calculate the basis gain or loss on the futures contract net amount paid to purchase the oil an... View the full answer