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FRM Part I · FRM Exam Part I · Commodity Forwards and Futures

A crude oil producer will sell 100,000 barrels in two months and shorts 100 futures contracts (1,000 barrels each) at 80.00. At the sale date, spot is 74.50 and the futures price is 75.20. What is the producer's effective realized price per barrel, and what is the basis at closing, defined as spot minus futures?

The effective price is 79.30 per barrel, with a closing basis of -0.70. The short futures gain 4.80 per barrel, added to the 74.50 spot sale price. This equals the initial futures price of 80.00 plus the closing basis of -0.70.

  1. APrice 79.30; basis -0.70Correct
  2. BPrice 80.70; basis +0.70
  3. CPrice 79.30; basis +0.70
  4. DPrice 74.50; basis -0.70

Explanation

Futures gain on the short = 80.00 - 75.20 = 4.80. Effective price = 74.50 + 4.80 = 79.30. Basis = 74.50 - 75.20 = -0.70. Check: 80.00 + (-0.70) = 79.30.

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