How come?

If I want to buy 1mil barrels and the market is at today's high, my OTC dealer will quote me above todays high. How is that not price discovery? He may well then hedge his short OTC position by buying futures - making further new highs.

Fact is, they are all derivatives. And all priced off of (as you rightly say) a more thinly traded cash market

There are about 5-6 trade reporting depositories for OTC oil contracts and many CCP's. I guess we'd need Bloomberg or Platts to suggest how many barrels are traded OTC

The physical spot market is pretty small compared to the futures market, even if you measure it by open interest.
Open interest for crude oil stand currently at

- 1.8 million contracts for NYMEX
- 1.6 million contracts for IPE

This totals 3.4 million contracts or 3.4 billion b/d.

If you talk about OTC contracts, you talk about derivatives. Those do not contribute to price discovery, price discovery mainly takes place on the two futures exchanges.

Fat Tails, you are a wealth of information. I'm glad you are here!

So to make a (perhaps overly) simple statement, for every physical barrel of oil out there in the world, there are about 10 barrels worth of futures contracts. Is that ratio anywhere close to correct?

Thanks,
-Bob

As @TheDude pointed out, you need to make a difference between inventory (of physical oil) and open interest (of futures contracts) on the one side and trading volume (traders moving in and out of positions) on the other side.

It is much easier to trade paper compared to trading physical oil. Therefore the trading volume in paper oil (futures) and derivatives is much higher than the trading volume in physical oil. We talked about the spot trading volume and found

physical oil: trading volume < 25 million b/d
paper oil: trading volume > 500 million b/d
derivatives : trading volume unknown (but certainly much larger than physical oil)

Market size is determined by daily trading volume and not inventory.