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1 FREEMAN SCHOOL OF BUSINESS ENRG Energy Fundamentals and Trading Fall 2014 Instructor: John Foreman Office: GWII, M119 Office Hours: By Appointment Class Meeting Day & Time: Office Phone: Blackboard Site: mytulane.blackboard.com Class Location: Room 1112, GWII Course Description: ENRG 7200 Energy Fundamentals and Trading (3). The course will cover the fundamentals of energy production, transportation, refining, and the related marketing and trading activities. Structure of physical and financial markets, risk management practices, and portfolio modeling will be covered. The course will include interactive trading in the Freeman School's state-of-the-art trading room, which will focus on the futures market of the New York Mercantile Exchange (NYMEX) to test student-developed trading strategies, mark-to-market models, and risk management tactics used in today's fast-paced energy trading environment. Course Prerequisites or Co-Requisites: INFO 6020 AND ENRG 6010, FINE 7040 AND ENRG 6010 OR ENRG Course Goals: This course is designed to teach students a comprehensive approach to researching, analyzing, strategizing and trading of any commodity while focusing specifically on the North American energy markets. Students will learn to develop trading strategies after an extensive study of the energy industry fundamentals of exploration, production, transportation, refining, storage, and the related financial and economic implications using current industry publications, news, and real-time market intelligence and pricing. Students will also learn to use commercial-grade Reuters EIKON, Trading Technologies X_trader software, and Logical Information Machines (LIM) software to develop integrated mark-to-market models and trading models, and learn charting and technical trading tools. 1

2 Students will also learn how to organize team strategies, develop concise pitch book presentations, and present such strategies for comment and feedback, including trading, risk management, time spreads, crack spreads, hedge ratios, and price forecasting. Developing professional, concise written and verbal presentations is a key skill needed in today s trading environments. Using Tulane s state-of-the-art trading room and integrating customized market case studies, trading roles, and market simulations, students will receive experiential learning and feedback on how to test their individual and team developed trading strategies as they participate in numerous trading simulations deploying open-outcry and electronic trading methodologies while assuming different market participant roles of brokers, consumers, producers, refiners, and speculators. Student Learning Objectives: As the result of this course students should be able to: Utilize the skills obtained in this course to approach any commodity trading endeavor in an organized, methodical, logical, and experienced manner Understand energy fundamentals, including the exploration, production, transportation, storage, and marketing information and inter-relationships. Understand NYMEX energy market contracts, forward curves, liquidity, margin requirements, and how to trade such contracts in both an open outcry and electronic trading environment Research, analyze, develop fundamental and technical energy trading strategies presented in a concise, professional written and verbal format Use Reuters EIKON, Trading Technologies X_Trader, LIM, and related excel modeling tools Develop trading and position mark-to-market models Trade natural gas, crude oil, heating oil, gasoline from the perspective of a broker, consumer, producer, refiner, and speculator using integrated trading models, time spreads, and crack spreads while trading illiquid periods using hedge ratios. Develop product price research and forecasts Understand the use of derivatives and risk management tools Understand from first-hand experience of the various roles of trading personnel, including research, trading, and position monitoring/tracking, as part of the trading team simulations undertaken. Join professional trading firms having learned through extensive training and hands-on experiences the basic skills, emotions, responses, and the human and technical demands needed to successfully participate in a volatile energy trading environment. Course Material: There will be no text book for this course. Students will be provided with lecture presentation notes and numerous current energy market publications, including real-time news, videos, market prices, and industry research reports. Reference materials and technical product training guides will also be provided. Students will be responsible for all lecture information, assigned reading materials, and information posted on the class Blackboard. 2

3 Grading: The course is designed to challenge many different skills of the student and the grading structure is designed avoid any concentration of grading to any one specific skill set. As such, a combination of written tests, verbal presentations, written presentations, development of excel-based trading and mark-tomarket models, and the development of a price forecast research project comprise the typical learning assessment methods. In addition, a portion of the course is designed to teach, measure, and provide feedback to the degree of proficiency in developing and executing successful trading strategies. By exposing a certain (albeit small portion) of the performance to the risk of the trading success, students experience the transition from theory to real-world trading emotions and feedback. A student s performance will be assessed as follows: MidTerm 20% MTM 4% Margin 3% Nat Gas 5% Research 10% Crude Curve 10% Refinery 13% Trading Competition 15% Final Exam 20% Grading will be on a 10 point scale. 100% Letter Quality Grade Score Points A A B B B C C C D D D F Below 60 0 Class Attendance: Since this course utilizes the laboratory method of experiential learning, full attendance, punctuality and participation are essential for a student s and other s learning. Missing class typically will involve a student s inability to participate in regular written and verbal presentation, as well as, the roles and trading models required to be used, tested, and assessed as part of your grade. As such, a student may not be able to complete the course if more than one class is missed. 3

4 Statement about Academic Integrity: This class will be conducted in full accordance with Tulane s policies about academic integrity including, but not limited to, the Unified Code of Graduate Student Academic Conduct ( ) and the Tulane University Code of Student Conduct ( Norms and Expectations: This class will be conducted in full accordance with published Norms and Expectations for Students in Freeman Classes. Please review the Norms and Expectations in your program handbook. Learning Disabilities: Under the Americans with Disability Act and Section 504 of the Rehabilitation Act, if you have a disability, you may have the right to an accommodation; however, the right is contingent upon your taking certain steps. You should review the steps that you need to take, as well as Tulane s policy concerning accommodations at Any student with a disability, in need of course or examination accommodation, should request an accommodation through the University s Goldman Office of Disability Services (ODS) located on the first floor of the Mechanical Engineering Building. At the beginning of the semester, please provide me with a copy of your approved ODS accommodation form. I am committed to working with ODS to ensure that I provide you with all approved accommodations. If you do not deliver the approved accommodation form to me, I will not know that ODS approved your accommodation and I will have no basis to provide those accommodations. Specific Course Policies: No video or audio taping of the class will be permitted. Class Schedule: 8/21 5:30PM 8:30PM E&P 101 Test (UBS & JPM) & Course Introduction Energy Trading Rooms E&P Fundamentals 8/22 1:30PM 4:30PM Energy Supply, Demand, & Logistics NYMEX Energy Contracts Fundamental Trading Exercise #1 8/23 12:00PM 3:00PM Trading Basics Thomson Reuters Training (MUST ATTEND) Physical Marketing 8/28 5:30PM 8:30PM Thomson Reuters or Morningstar Training 4

5 09/04 5:30PM 8:30PM Crude Forward Curves and Calendar Spreads MTM Models Research Project Discussion Fundamental Trading Exercise #2 09/05 12:00PM 2:00PM Trading Technologies Xtrader Training (MUST ATTEND!) Refinery Trading Case and Individual Crude Trading Overview w/ X-Trader 09/06 LAB 09/18 5:30PM 8:30PM Thomson Reuters or Morningstar Training 09/25 5:30PM 8:30PM Midterm Review Questions Open Outcry Video Natural Gas Case Study Preparation/Simulation Practice Fundamental Trading Exercise #3 09/26 12:00PM 3:00PM Margin & Transaction Cost Modeling Crude Oil Case Preparation Natural Gas Case Questions 10/2 5:30PM 8:30PM Midterm Fundamental Trading Exercise #4 (Unwind) 10/30 5:30PM 8:30PM Natural Gas Presentations Natural Gas Trading Simulations (Open-Outcry Reuters) MTM Model Due Crude Oil Case Questions Research Project Review 11/07 7:30AM 12:00PM Crude Oil Forward Curve Presentations Crude Oil Trading Simulation (Open-Outcry Reuters) Crack Spread Economics 11/08 7:30AM 10:30AM Refinery Trading Case Study & Simulation Practice Individual Crude Oil Trading 5

6 11/13 5:30PM 8:30PM Margin Model Due Research Project Due/Presentations Trading & Position Model requirements Prep for Crude Oil and Refinery Case Study 12/04 5:30PM 8:30PM Refinery Presentations Refinery Trading Simulation (Reuters & TT) Individual Crude Oil Electronic Trading Case Study Preparation (Trading Technologies) Refinery Trading Simulation Practice 12/06 LAB 12/06 7:30-11:30 Research Project Results Intro to Risk Management Techniques Individual Crude Oil Electronic Trading Competition Final Exam Review 12/11 5:30PM 7:00PM Final Exam 6