Post on 20-Jul-2016
description
Oil and Natural Gas Commodity MarketThe Largest Commodity Market of the World
ENERGY COMMODITIES Highest by value- current market size. Known as hard commodity as it is mined. Highly tied to the political stability of the main countries.
Oil wells are used to release the oil from within the earth. Some of the earliest developed oil wells were drilled in China using bamboo poles in 347 A.D. for the sole purpose of providing enough fuel to create a thriving salt industry.
By the 1950s, crude oil became a global energy source, which in effect killed the whaling industry by making whale oil obsolete.
Main products- West Texas Intermediate Crude Oil Brent Crude Oil Natural Gas Heating Oil Ethanol Purified Terephthalic acid
Oil
Type API Gravity
Light-Lower density
ViscosityHeavy-
Higher density Viscosity
Sulphur Content
Sweet-Less Sulphur (<0.5%)
Sour-Excessive Sulphur
(>0.5%)
Oil
Nam
es
BrentLight Sweet oil
from North Sea
West Texas Intermediate
Light Sweet benchmark in
USDubai Light Sour
Persian Gulf
OPEC Basket 13 different regional oils Ex
chan
ges
New York Mercantile Exchange (NYMEX)
Intercontinental Exchange (ICE)
Multi Commodity Exchange (MCX)
Chicago Mercantile Exchange (CME)
Tokyo Commodity Exchange (TOCOM)
Size- $5trApprox. 7% of global GDP shareAnnual growth (2009-14)- 11.9%
OPEC & PETROLEUM MARKET OPEC (Organization of the Petroleum Exporting Countries) is an international organization whose mission is to coordinate the
policies of the oil-producing countries. IT was formed in 1960 in Baghdad Conference to try to counter the oil companies cartel, which had been controlling posted
prices since the so-called 1927 Red Line Agreement and 1928 Achnacarry Agreement, and had achieved a high level of price stability until 1972.
The policy statement states that the countries have a right to exercise their sovereignty over their natural resources. Headquarters at Vienna, Austria.
Sheikh Ahmed Zaki Yamani- Former Oil Minister, Saudi Arabia; Former General Secretary, OPEC
It’s the longest running Economic Cartel in the known history.
Because OPEC is an organisation of countries (not oil companies), individual members have sovereign immunity for their actions, meaning that OPEC is not regarded as being subject to competition law in the normal way
OPEC & PETROLEUM PRICES
Former Saudi Oil Minister Sheikh Yamani famously said in 1973: "The stone age didn't end because we ran out of stones."
• When the future price of a commodity (e.g. oil) is higher than its present price, a situation known as "contango", it is more profitable for a commodities producer to store the commodity and sell it at a later date.
• This causes oil price volatility through various channels:
• For example, storage of a commodity causes supply to be reduced in the present, raising spot prices, while expectations regarding future supply increase - thereby reversing the cycle, which then causes contango all over again.
CRUDE OIL GRADES West Texas Intermediate (WTI)
Brent Crude Dubai/Oman OPEC Reference Basket
Composition Sweet, Light0.31% Sulphur39.6 API
Sweet, Light0.37% Sulphur38.06 API
Sour, Heavy2% Sulphur31 API
Weighted average of oil from OPEC countries
Region North America (major hub- Oklahoma)
North Sea, Atlantic Basin
Persian Gulf OPEC
Significance Benchmark for oil and underlying in North America
Benchmark price of worldwide purchases of nearly 2/3 oil trade
Benchmark Persian Gulf Crude for exports to Asia
Benchmark for oil produced by OPEC countries
Indexes traded NYMEX ICE, NYMEX DME OPEC Reference Basket
Contract 1000 barrel (42000 gallons)1 tick = $10
1000 barrel (159 m3)1 tick = $10
1000 barrel (159 m3)1 tick = $10
-
Trading World Oil Price by EIA Brent Index for cash futures on ICE
Dubai benchmark -
Contract Specifications
Ticker Symbol Crude Oil- CL (NYMEX) or WTI (ICE)
Natural Gas-NG (NYMEX)
Contract Size 1,000 U.S. barrels (42,000 gallons) 10,000 million Btu (also available at 25% & 50% of normal size)
Deliverable Grades Domestic crudes<=0.42% sulphur; 37<API<42Foreign crudes<=0.42% sulphur; 34<API<42
Pipeline specifications in effect at time of delivery
Contract Months All months
Trading Hours NYMEX Open Outcry: Monday-Friday 9am- 2:30pm ESTeCBOT Electronic: Sunday-Friday 6pm-5:15pm CST
Last Trading Day third business day prior to the 25th calendar day of the month preceding the delivery month
three business days prior to thefirst calendar day of the delivery month
Last Delivery Day Last calendar day of the delivery monthPrice Quote Dollars and cents per barrel Cents per million Btu (mmBtu)Tick Size NYMEX: 1 cent per barrel ($10.00
per contract)NYMEX: .1 cents per mmBtu ($10/per contract)
Crude Oil (CL) 2014 (14) May (K) at $108.52/barrel (108.52)Hence, contract size- $108.52 x 1,000 barrels = $108,520
CL14K @ 108.52
Natural Gas (NG) 2014 (14) May (K) at $10.946/mmBtu (10.946Hence, contract size- $10.946x10,000mmBtu= $109,460
NG14K @ 10.946
CRUDE OIL CONTRACTS
NATURAL GAS The Natural Gas price is based on delivery at the Henry Hub in Louisiana, the nexus of 16 intra- and interstate natural gas
pipeline systems that draw supplies from the region’s prolific gas deposits. Natural gas is difficult to store or transport unless converted to Liquid Natural Gas. There are many factors influencing the price of natural gas, the majority including weather, storage, production and
incremental supply from LNGs. The spread between natural gas futures and electricity futures called the spark spread can be used to manage risk exposure in
the energy markets.
The futures contract is available for trading on the Chicago Mercantile Exchange's Globex electronic trading platform nearly 24 hours per day, and clears through the New York Mercantile Exchange clearinghouse.
SHALE OIL & GAS Shale gas is natural gas that is found trapped within shale formations, often independent of the Shale Oil.
Shale Oil, also called Light Tight Oil by International Energy Agency, is found in the Shale rock formation and extracted by a process called Fracking.
Together Shale Oil & Gas are changing the global landscape of energy products and taking the centre of gravity away from the OPEC nations.