Producer Hedging the Production of Heavy Crude Oil
|
|
- Julius Brent Tate
- 8 years ago
- Views:
Transcription
1 Producer Hedging the Production of Heavy Crude Oil An oil producer sells its future production of heavy crude oil to a customer at an agreed-upon price today. The producer seeks to lock-in this price to protect against an adverse price movement between the time the price is agreed upon (today) and the time the heavy crude oil will be produced and delivered in three weeks. The price of one barrel of heavy crude oil (specifically, Western Canadian Select or WCS) is quoted in the market at US$10.00 below the price of West Texas Intermediate (WTI). Since Canadian crude oil is priced at a differential to WTI, the producer is exposed to the risk of large fluctuations in the price differential between heavy crude oil and light crude oil. Specifically, if the price differential widens, the producer s profitability and cash flow will be adversely impacted. So, the producer is looking to lock-in the price differential between WCS heavy crude oil and WTI light crude oil to hedge the production of heavy crude oil. The producer can use Canadian Heavy Crude Oil Differential Price futures (or WCH DIFF futures) and WTI Light Crude Oil futures (or WTI futures) to hedge efficiently the production of heavy crude oil. Backdrop Scenario TODAY IN THREE WEEKS Price of the WTI futures US$70.00 US$66.00 WCS WTI differential price (the NGX WCS WTI Crude Oil Index represents the price differential between WCS and WTI) -US$10.00 US$10.00 per barrel lower than WTI. -US$16.00 US$16.00 per barrel lower than WTI. Implied price of one barrel of WCS US$60.00 US$50.00 Strategy ACTION TODAY IN THREE WEEKS REMARKS Step 1 - Hedge the price of one barrel of WCS Sell WTI US$70.00 Buy WTI US$66.00 Producer closes out the position in WTI futures. Note: there is no delivery of WTI crude oil as the position is closed before the expiration of the WTI futures. Profit = +US$4.00 Implied price of one barrel of WCS (producer s inventory of heavy crude oil resulting from future production) US$60.00 US$50.00 Loss as a result of the price drop of one barrel of WCS heavy crude oil. Loss = -US$10.00 Cont d... >>
2 ACTION TODAY IN THREE WEEKS REMARKS Step 2 - Hedge the basis risk between heavy crude oil and light crude oil Producer sells WCH DIFF -US$10.00 or US$90.00 as per the quotation method of the NGX WCS WTI Crude Oil Index for the WCH futures contract Note: the NGX WCS WTI Crude Oil Index is the underlying index of the WCH DIFF futures Sell WCH DIFF US$90.00 Buy WCH DIFF US$84.00 Producer closes out the position in WCS DIFF futures. Note: The producer sells WCH DIFF futures to hedge the basis risk between heavy crude oil and WTI light crude oil. Profit = +US$6.00 Net profit/loss Net profit/loss = US$0.00 (resulting in a fully hedged position) Therefore, the producer s strategy to sell the WTI futures contract (to hedge the price of one barrel of WCS) combined with the sale of the WCH DIFF futures contract to hedge the basis risk (specifically, to hedge against a widening of the price differential between one barrel of WTI and one barrel of WCS) results in an efficiently hedged position. Had the producer not used the WCH DIFF futures contract, he would have suffered a loss of US$6.00 per barrel. The loss is explained by the fact that the WTI futures contract does not account for the basis risk between heavy crude oil and WTI light crude oil. Therefore, the producer is faced with an additional risk that is not covered by using only WTI futures contracts. To hedge the basis risk (price differential), a producer must sell WCH DIFF futures contracts as well. In this scenario, regardless whether the price of WTI or WCS rises or drops, the producer s motivation for initiating the transaction is to hedge against the risk of a widening of the price differential between WTI and WCS. As shown in the following figure, a widening of the differential generally leads to poorer profitability for Canadian heavy oil producers and a narrowing of the differential generally leads to poorer profitability for oil refiners. Therefore, both producers and end users have a price risk to manage that would be mitigated using the Canadian Heavy Crude Oil Differential Price futures contract (WCH). FIGURE 1: FINANCIAL IMPACT OF THE PRICE DIFFERENTIAL BETWEEN LIGHT AND HEAVY CRUDE OIL FOR PARTICIPANTS Source: Petro Canada
3 Refiner Hedging a Narrowing Price Differential between Heavy Crude Oil and Light Crude Oil A refiner s processing margins are gradually being squeezed as a warm winter has sharply reduced the demand for heating oil. The refiner expects margins to shrink further from current levels as OPEC and Canadian producers cut output of heavy crude oil, as global demand slows, tightening supply and narrowing the price discount of heavy crude oil relative to light crude oil. Refiners buy crude oil as the raw material for their operations to produce and sell refined products typically, heating oil and gasoline. So, refiners make money from the differential between different grades of crude oil (light and heavy) and prices of refined products, not the price of crude oil and gasoline alone. Since Canadian crude oil is priced at a differential to WTI, the refiner is exposed to the risk of large fluctuations in the price differential between heavy crude oil and light crude oil. Specifically, a narrowing price differential between heavy crude oil and light crude oil implies that it costs the refiner more to produce heating oil by refining heavy crude oil, thereby cutting into profitability. Consequently, the refiner seeks to lock-in the price differential between heavy crude oil and light crude oil to hedge against the risk that the price differential will narrow between the time the price is agreed upon with the producer and the time the heavy crude oil will be delivered in four weeks. To hedge the risk against further erosion in processing margins, the refiner decides to adopt a strategy using Canadian Heavy Crude Oil Differential Price futures (or WCH DIFF futures). Backdrop Scenario TODAY IN FOUR WEEKS Price of the WTI futures US$80.00 US$70.00 WCS WTI differential price (the NGX WCS WTI Crude Oil Index represents the price differential between WCS and WTI) -US$12.00 US$12.00 per barrel lower than WTI. -US$5.00 US$5.00 per barrel lower than WTI. Implied price of one barrel of WCS US$68.00 US$65.00 Strategy ACTION TODAY IN FOUR WEEKS REMARKS Step 1 - Hedge the price of one barrel of WCS Buy WTI US$80.00 Sell WTI US$70.00 Refiner closes out the position in WTI futures. Note: there is no delivery of WTI crude oil as the position is closed before the expiration of the WTI futures. Loss = -US10.00 Implied price of one barrel of WCS (change in the price of heavy crude oil over the time period) US$68.00 US$65.00 It costs the refiner US$3.00 less (per barrel) to buy WCS heavy crude oil. Profit = +US$3.00 Cont d... >>
4 ACTION TODAY IN THREE WEEKS REMARKS Step 2 - Hedge the basis risk between heavy crude oil and light crude oil Refiner buys WCH DIFF -US$12.00 or US$88.00 as per the quotation method of the NGX WCS WTI Crude Oil Index for the WCH futures contract Note: the NGX WCS WTI Crude Oil Index is the underlying index for the WCH DIFF futures. Buy WCH DIFF US$88.00 Sell WCH DIFF US$95.00 Refiner closes out the position in WCH DIFF futures. Note: The refiner buys WCH DIFF futures to hedge the basis risk between heavy crude oil (WCS) and light crude oil (WTI). Profit = +US$7.00 Net profit/loss Net profit/loss = US$0.00 (resulting in a fully hedged position) Therefore, the refiner s strategy to buy the WTI futures contract (to hedge the price of one barrel of WCS) combined with a long position in the WCH DIFF futures contract to hedge the basis risk (specifically, to hedge against a narrowing of the price differential between one barrel of WTI and one barrel of WCS) results in a efficiently hedged position. Had the refiner not used the WCH DIFF futures contract, he would have suffered a loss of US$7.00 per barrel. The refiner can hedge the basis risk using WCH DIFF futures contracts. In this scenario, regardless whether the price of WTI or WCS rises or drops, the refiner s motivation for initiating the transaction is to hedge against the risk of a narrowing of the price differential between WTI and WCS.
5 Investor Expecting the Price Differential between Heavy Crude Oil and Light Crude Oil to Widen An investor believes that the price differential between heavy crude oil and light crude oil will widen from the current level of -US$12.25 per barrel (as measured by the level of the NGX WCS WTI Crude Oil Index, which represents the price of one barrel of Western Canadian Select Heavy Crude Oil minus the price of one barrel of West Texas Intermediate Crude Oil). Supporting the outlook is the view that demand for asphalt and roofing tar (produced by refining heavy crude oil) will be considerably lower in the foreseeable future on slower construction activity, and demand for gasoline (produced mainly by refining light crude oil) will be higher ahead of the summer driving season. Against this backdrop, the investor expects the price of heavy crude oil to underperform relative to the price of light crude oil. Strategy The investor decides to use Canadian Heavy Crude Oil Differential Price futures contracts (or WCH futures) to benefit from the expectations of a widening of the price differential between heavy crude oil and light crude oil. Specifically, the investor sells five WCH futures. PRICE METHODOLOGY : The price of the WCH futures contract is quoted based on the following methodology: the price differential* between one barrel of WCS and one barrel of WTI * as measured by the NGX WCS WTI Crude Oil Price Index The price of the WCH futures contract is quoted at US$87.75 (implying that the price differential between heavy crude oil and light crude oil is -US$12.25 per barrel). The investor sells five WCH futures contracts (equivalent of 5,000 barrels of heavy crude oil). In Two Months In two months, the price of the WCH futures contract drops to US$83.50 (implying a price differential between heavy crude oil and light crude oil of -US$16.50 per barrel), and the investor closes out the position. Consequently, the price differential between heavy crude oil and light crude oil widened from -US$12.25 to -US$16.50 per barrel. Thus, the investor realizes a gain of US$4.25 per barrel for a profit of US$4, per futures contract (calculated by multiplying US$4.25 per barrel by the trading unit of 1,000 barrels of the futures contract), excluding commissions. The investor s total profit on the position of five contracts is calculated as follows: US$4.25 per barrel X 1,000 barrels per contract X 5 contracts = US$21, NUMBER OF WCH FUTURES BUY SELL CONTRACTS LEVEL Today PROFIT/LOSS (PER CONTRACT) PROFIT/LOSS (FOR TOTAL POSITION) In two months US$4, US$21, Cont d... >>
6 Given available research or fundamental market information, investors must consider as well the historical volatility and the price evolution of the differential price between heavy crude oil and light crude oil before initiating a position in the WCH futures contract. As shown in the following figure, the differential price between Canadian heavy crude oil (WCS) and light crude oil (WTI) is very volatile. The volatility, as measured by the standard deviation of the differential prices over a 20-day period, has ranged from a high of 270% to a low of 15%. Moreover, the differential price has ranged from a high of US$45.00 per barrel to a low of US$5.00 per barrel. FIGURE 1: DIFFERENTIAL PRICE AND 20-DAY ANNUALIZED VOLATILITY (WTI LIGHT MINUS WCS HEAVY) JANUARY 2005 TO APRIL % % % 150% % 15 50% % Jan 05 Jul 05 Jan 06 Jul 06 Feb 07 Aug 07 Feb 08 Aug 08 Mar 09 Sep 09 Mar Day Annualized Volatility Differential Price (US$ per barrel) Source: Bloomberg L.P.
The Changing Relationship Between the Price of Crude Oil and the Price At the Pump
In 2007, what goes up, does not necessarily come down... May 3, 2007 The Changing Relationship Between the Price of Crude Oil and the Price At the Pump Prepared by: Tim Hamilton Petroleum Industry Consultant
More informationPETROLEUM WATCH September 16, 2011 Fossil Fuels Office Fuels and Transportation Division California Energy Commission
PETROLEUM WATCH September 16, 2011 Fossil Fuels Office Fuels and Transportation Division California Energy Commission Summary As of September 14, retail regular-grade gasoline prices in California increased
More informationShort-Term Energy Outlook Market Prices and Uncertainty Report
July 2014 Short-Term Energy Outlook Market Prices and Uncertainty Report Crude Oil Prices: After an upward move in mid-june, crude oil prices retreated close to previous levels. The North Sea Brent front
More informationExample of a diesel fuel hedge using recent historical prices
Example of a diesel fuel hedge using recent historical prices Firm A expects to consume 5,, litres of diesel fuel over the next 12 months. Fuel represents a large expense for the firm, and volatile prices
More informationBox 6 International Oil Prices: 2002-03
Annual Report 2002-03 International Oil Prices: 2002-03 Box 6 International Oil Prices: 2002-03 Notwithstanding the state of the world economy, characterised by sluggish growth in 2002, the world crude
More informationCONTRACT SPECIFICATIONS FUTURES FUTURES CONTRACT BRENT CRUDE OIL WTI CRUDE OIL. Trading system code BRNT WTIO
CONTRACT SPECIFICATIONS FUTURES FUTURES CONTRACT BRENT CRUDE OIL WTI CRUDE OIL Trading system code BRNT WTIO Trading Hours 08h30 to 17h00 South African time. Admin period from 17h00 to 17h15. (Monday to
More information3/11/2015. Crude Oil Price Risk Management. Crude Oil Price Risk Management. Crude Oil Price Risk Management. Outline
1 Phoenix Energy Marketing Consultants Inc. 2 Outline What is crude oil price risk management? Why manage crude oil price risk? How do companies manage crude oil price risk? What types of deals do companies
More informationPractice Set #1: Forward pricing & hedging.
Derivatives (3 credits) Professor Michel Robe What to do with this practice set? Practice Set #1: Forward pricing & hedging To help students with the material, eight practice sets with solutions shall
More informationWhat drives crude oil prices?
What drives crude oil prices? An analysis of 7 factors that influence oil markets, with chart data updated monthly and quarterly Washington, DC U.S. Energy Information Administration Independent Statistics
More informationFinancial strategy supports business plan
Financial strategy supports business plan Ivor Ruste Executive Vice-President & Chief Financial Officer Investor Day Calgary December 7, 2011 Financial strategy supports business plan Support long-term
More informationDebt Markets Sell Off Despite RBA Silence
FINANCIAL MARKET UPDATE Debt Markets Sell Off Despite RBA Silence RBA leaves cash rate unchanged but local debt market sells off anyway Implied yields on 2006 bill futures strip up by between 6 and 20
More informationINTRODUCTION. Production / Extraction of Oil. Distribution & Sale to refined products to end users
CRUDE OIL INTRODUCTION Crude oil holds prominence as input to the global growth engine since it is the most important source of energy accounting for more than two fifth of the global energy consumption.
More informationHedging Foreign Exchange Rate Risk with CME FX Futures Canadian Dollar vs. U.S. Dollar
Hedging Foreign Exchange Rate Risk with CME FX Futures Canadian Dollar vs. U.S. Dollar CME FX futures provide agricultural producers with the liquid, efficient tools to hedge against exchange rate risk
More informationWhat does the Dow Jones-UBS Commodity Index track?
Dow Jones-UBS Commodity Index FAQ What does the Dow Jones-UBS Commodity Index track? The Dow Jones-UBS Commodity Index is an index tracking the performance of a weighted group of exchange-traded futures
More informationWhither Oil Prices and Volatility?
OIL PRICE VOLATILITY What Do We Know? Robert J. Weiner Professor of International Business, Public Policy & Public Administration, and International Affairs, George Washington University Membre Associé,,
More informationA GUIDE TO ENERGY HEDGING
1 A GUIDE TO ENERGY HEDGING Other Considerations...................................................38 Basis..............................................................38 Example 12 Effect of Basis on
More informationCommodity Price Outlook & Risks
Commodity Outlook & Risks Research Department, Commodities Team January, 2 www.imf.org/commodities commodities@imf.org This monthly report presents a price outlook and risk assessment for selected commodities
More informationSandRidge Permian Trust Risk Outweighs Potential Reward of Higher Oil Prices
SandRidge Permian Trust Risk Outweighs Potential Reward of Higher Oil Prices SandRidge Permian Trust units (PER) fell from $4.50 on the ex-distribution date in November 2015 to an all-time low of $2.01
More informationLifting the Crude Oil Export Ban
September 2015 Lifting the Crude Oil Export Ban Explainer I: Crude Oil Export Ban Overview The Bipartisan Policy Center (BPC) prepared this overview as part of a series to promote greater understanding
More informationRussell Rhoads, CFA Instructor The Options Institute. 2010 Chicago Board Options Exchange, Incorporated. All rights reserved.
Trading VIX Futures and Options Russell Rhoads, CFA Instructor The Options Institute 2010 Chicago Board Options Exchange, Incorporated. All rights reserved. CBOE Disclaimer Options and futures involve
More informationHedging Milk with BFP Futures and Options
Curriculum Guide I. Goals and Objectives A. Gain an understanding of milk price seasonality. B. earn about basis and how to track it over time. C. earn how to hedge future milk sales with BFP futures and
More informationShort-Term Energy Outlook Market Prices and Uncertainty Report
February 2016 Short-Term Energy Outlook Market Prices and Uncertainty Report Crude Oil Prices: The North Sea Brent front month futures price settled at $34.46/b on February 4 $2.76 per barrel (b) below
More information(c) 2006-2014 Gary R. Evans. May be used for non-profit educational purposes only without permission of the author.
The futures markets Introduction and Mechanics, using Natural Gas as the example (c) 2006-2014 Gary R. Evans. May be used for non-profit educational purposes only without permission of the author. Forward
More informationCONNECTICUT ENERGY PRICE REPORT
CONNECTICUT ENERGY PRICE REPORT 1/15/2015 DENOTES FALLING PRICES COMPARED TO YEAR EARLIER DENOTES FLAT PRICES COMPARED TO YEAR EARLIER DENOTES RISING PRICES COMPARED TO YEAR EARLIER CONNECTICUT RETAIL
More informationOil and Gas U.S. Industry Outlook
Oil and Gas U.S. Industry Outlook VERSION 01 YEAR 13 OUTLOOK: Positive fundamentals & outlook www.eulerhermes.us Key points WTI Crude is expected to continue to converge to Brent crude prices, narrowing
More informationBond Market Perspectives
LPL FINANCIAL RESEARCH Bond Market Perspectives December 16, 2014 Tempting TIPS Anthony Valeri, CFA Fixed Income & Investment Strategist LPL Financial Highlights Lower inflation expectations as a result
More informationHedging Strategies Using
Chapter 4 Hedging Strategies Using Futures and Options 4.1 Basic Strategies Using Futures While the use of short and long hedges can reduce (or eliminate in some cases - as below) both downside and upside
More informationOil & Gas Market Outlook. 6 th Norwegian Finance Day Marianne Kah, Chief Economist March 2, 2016
Oil & Gas Market Outlook 6 th Norwegian Finance Day Marianne Kah, Chief Economist March 2, 2016 Challenging Market Environment Concerns that global economic growth will slow and reduce global oil and natural
More informationBULLETIN #113 UPDATED JULY 14, 2015 COMPANY ANALYSIS NORTHERN TIER ENERGY NTI:NYSE
BULLETIN #113 UPDATED JULY 14, 2015 COMPANY ANALYSIS NORTHERN TIER ENERGY NTI:NYSE NTI is a pure-play, mid-continent refinery. It s a variable rate MLP (Master Limited Partnership) which pays out a big
More informationDGCX Contract Specifications
DGCX Contract Specifications Products Gold futures Options on Gold Futures Silver Futures Currencies: Indian Rupee - US Dollar FX Futures Contract Options on Indian Rupee Futures Euro - US Dollar FX Futures
More informationTHE UNDAMENTALS AND ECHNIQUES RADING OMMODITY PREADS. c s
c s THE UNDAMENTALS AND ECHNIQUES OF RADING OMMODITY PREADS The purpose of this booklet is to give you a better understanding of various aspects of spread trading in the futures market. Center for Futures
More informationOver a barrel: Causes and consequences of the fall in oil prices
November 14, 2014 Over a barrel: Causes and consequences of the fall in oil prices Executive Summary The $30 fall in oil prices since July reflects greater U.S. supply as well as worries about a significant
More information9 Hedging the Risk of an Energy Futures Portfolio UNCORRECTED PROOFS. Carol Alexander 9.1 MAPPING PORTFOLIOS TO CONSTANT MATURITY FUTURES 12 T 1)
Helyette Geman c0.tex V - 0//0 :00 P.M. Page Hedging the Risk of an Energy Futures Portfolio Carol Alexander This chapter considers a hedging problem for a trader in futures on crude oil, heating oil and
More informationINTRODUCTION TO OPTIONS MARKETS QUESTIONS
INTRODUCTION TO OPTIONS MARKETS QUESTIONS 1. What is the difference between a put option and a call option? 2. What is the difference between an American option and a European option? 3. Why does an option
More informationPRICE FIXING STRATEGIES INTRO TO HEDGING
PRICE FIXING STRATEGIES INTRO TO HEDGING QuickTime and a decompressor are needed to see this picture. Why manage risk? The business of a cotton producer is to grow and market cotton at a profitable price.
More information(c) 2006-2014 Gary R. Evans. May be used for non-profit educational purposes only without permission of the author.
The futures markets Introduction and Mechanics (c) 2006-2014 Gary R. Evans. May be used for non-profit educational purposes only without permission of the author. Forward contracts... Forward contracts
More informationHSBC Asian High Yield Bond Fund
Important information: HSBC Asian High Yield Bond Fund (the Fund ) invests primarily in a broad range of higher yielding Asian fixed income securities and instruments. Investments of the Fund may include
More informationMarket Monitor Number 3 November 2012
Market Monitor Number 3 November 2012 AMIS Crops: World Supply-Demand Balances in 2012/13 World supply and demand situation continues to tighten for wheat and maize but rice and soybeans have eased. In
More informationIntercontinentalExchange. Credit Suisse Financial Services Forum February 7, 2008
IntercontinentalExchange Credit Suisse Financial Services Forum February 7, 2008 Forward-Looking Statements Forward-Looking Statements This presentation may contain forward-looking statements made pursuant
More informationHedging Natural Gas Prices
Hedging Natural Gas Prices Luke Miller Assistant Professor of Finance Office of Economic Analysis & Business Research School of Business Administration Fort Lewis College Natural Gas Industry U.S. natural
More informationAn Assessment of Prices of Natural Gas Futures Contracts As A Predictor of Realized Spot Prices at the Henry Hub
An Assessment of Prices of Natural Gas Futures Contracts As A Predictor of Realized Spot Prices at the Henry Hub This article compares realized Henry Hub spot market prices for natural gas during the three
More information2014 EXPIRATION CALENDAR PRODUCTS
204 EXPIRATION CALENDAR PRODUCTS As the world s largest and most diverse derivatives marketplace, CME Group is where the world comes to manage risk. In 2008, NYMEX became part of CME Group. Together, we
More informationHIGH DIVIDEND STOCKS IN RISING INTEREST RATE ENVIRONMENTS. September 2015
HIGH DIVIDEND STOCKS IN RISING INTEREST RATE ENVIRONMENTS September 2015 Disclosure: This research is provided for educational purposes only and is not intended to provide investment or tax advice. All
More informationCauses and Consequences of the Decline in the Price of Oil since June 2014
Causes and Consequences of the Decline in the Price of Oil since June 2014 Christiane Baumeister Lutz Kilian University of Notre Dame University of Michigan CEPR Brent Price of Crude Oil in 2013 and 2014
More informationEnergy Risk Professional (ERP ) Examination. Practice Quiz 3: Financial Products
Energy Risk Professional (ERP ) Examination Practice Quiz 3: Financial Products TABLE OF CONTENTS Introduction...............................................................1 ERP Practice Quiz 3 Candidate
More informationEstimated Crush Margins for Hog Producers, 2006-2015 Lee Schulz 1 Iowa State University
Estimated Crush Margins for Hog Producers, 2006-2015 Lee Schulz 1 Iowa State University Buying weaned pigs, corn, and soybean meal and selling hogs at discrete times throughout the year exposes wean to
More informationCrude Oil: What every investor needs to know By Andy Hecht
Crude Oil: What every investor needs to know By Andy Hecht Crude oil is considered by many to be the most important commodity market in the world. The value of crude oil affects almost every individual
More informationRoom XXVI Palais des Nations Geneva, Switzerland. Oil Market Outlook. Eissa B. Alzerma Oil Price Analyst Petroleum Studies Department, OPEC
UNCTAD Multi-Year Expert Meeting on Commodities and Development 2013 Recent developments and new challenges in commodity markets, and policy options for commodity-based inclusive growth and sustainable
More informationHSBC Global Investment Funds Global High Yield Bond
Important information: For certain classes of the Fund, the Fund may pay dividends out of capital or pay dividends gross of expenses. Investors should note that the payment of dividends out of capital
More informationAGRICULTURAL PRODUCTS. Introduction to Hedging with Dairy Futures and Options
AGRICULTURAL PRODUCTS Introduction to Hedging with Dairy Futures and Options TABLE OF CONTENTS 1. INTRODUCTION 1 2. WHAT ARE DAIRY FUTURES AND OPTIONS? 3 3. FINANCIAL INTEGRITY OF THE DAIRY FUTURES MARKET
More informationChapter 3: Commodity Forwards and Futures
Chapter 3: Commodity Forwards and Futures In the previous chapter we study financial forward and futures contracts and we concluded that are all alike. Each commodity forward, however, has some unique
More informationUsing Futures Markets to Manage Price Risk for Feeder Cattle (AEC 2013-01) February 2013
Using Futures Markets to Manage Price Risk for Feeder Cattle (AEC 2013-01) February 2013 Kenny Burdine 1 Introduction: Price volatility in feeder cattle markets has greatly increased since 2007. While
More informationCanadian Life Insurance Industry
A.M. Best Company s 9 th Annual Insurance Market Briefing Canada Canadian Life Insurance Industry Edward Kohlberg, CPA, FLMI Senior Financial Analyst Richard McMillan Senior Financial Analyst September
More informationAgenda. Petroleum Management
Petroleum Management 1 Agenda Energy Advantage Background - Petroleum Fuels Market Petroleum Procurement Services Background - Hedging/Risk Management Canadian Petroleum Market Correlation and basis differential
More informationRecent Developments and Outlook for the Mexican Economy Credit Suisse, 2016 Macro Conference April 19, 2016
Credit Suisse, Macro Conference April 19, Outline 1 Inflation and Monetary Policy 2 Recent Developments and Outlook for the Mexican Economy 3 Final Remarks 2 In line with its constitutional mandate, the
More informationCFD Product Guide. www.myfxchoice.com
CFD Product Guide www.myfxchoice.com Contents Notice Risk Warning 1. Trading Hours 2. Contract Size \ Contract value 3. Tick size \Tick value\spread value 4. Margin Requirements 5. Overnight Rollover Cash
More informationJAMES A. BAKER III INSTITUTE FOR PUBLIC POLICY RICE UNIVERSITY
JAMES A. BAKER III INSTITUTE FOR PUBLIC POLICY RICE UNIVERSITY Testimony of Kenneth B. Medlock III, PhD James A. Baker, III, and Susan G. Baker Fellow in Energy and Resource Economics, and Senior Director,
More informationTRADING PLACES inside the oil futures market. Karen Matusic
TRADING PLACES inside the oil futures market Karen Matusic Nymex Facts Biggest commodities futures market Volumes account for more than 10 times world oil production Started as a milk and butter exchange
More informationPREPARED FOR THE OAK RIDGE NATIONAL LABORATORY
NATURAL GAS AND ENERGY PRICE VOLATILITY PREPARED FOR THE OAK RIDGE NATIONAL LABORATORY BY THE 400 NORTH CAPITOL STREET, NW WASHINGTON, DC 20001 PRINCIPAL AUTHORS: BRUCE HENNING, MICHAEL SLOAN, MARIA DE
More informationSome Interesting Facts Regarding US Oil Supplies By EconMatters
Some Interesting Facts Regarding US Oil Supplies By EconMatters Bearish Sentiment Priced In? The futures contract for January 2015 has gone from $102 a barrel in July to $57 a barrel today, a $45 dollar
More informationStrong nerves needed? Investing in UK gas storage
Strong nerves needed? Investing in UK gas storage EPRG Winter Research Seminar Jostein Kristensen Managing Consultant The economics of storage new build Gas market uncertainties - supply - UKCS depletion
More informationCurrency Futures trade on the JSE s Currency Derivatives Trading Platform
Currency Futures trade on the JSE s Currency Derivatives Trading Platform DERIVATIVE MARKET Currency Derivatives Currency Futures www.jse.co.za Johannesburg Stock Exchange Currency Futures & Options trade
More informationCase 2:08-cv-02463-ABC-E Document 1-4 Filed 04/15/2008 Page 1 of 138. Exhibit 8
Case 2:08-cv-02463-ABC-E Document 1-4 Filed 04/15/2008 Page 1 of 138 Exhibit 8 Case 2:08-cv-02463-ABC-E Document 1-4 Filed 04/15/2008 Page 2 of 138 Domain Name: CELLULARVERISON.COM Updated Date: 12-dec-2007
More informationCurrency Options. www.m-x.ca
Currency Options www.m-x.ca Table of Contents Introduction...3 How currencies are quoted in the spot market...4 How currency options work...6 Underlying currency...6 Trading unit...6 Option premiums...6
More informationFutures Investment Series. No. 2. The Mechanics of the Commodity Futures Markets. What They Are and How They Function. Mount Lucas Management Corp.
Futures Investment Series S P E C I A L R E P O R T No. 2 The Mechanics of the Commodity Futures Markets What They Are and How They Function Mount Lucas Management Corp. The Mechanics of the Commodity
More informationMajor Market Indicators for 2006
Major North American indices finished December in the red after a volatile trading month with the S&P TSX and S&P 00 Total Return Index down.% and.6%, respectively. As we start 06, major market indices
More informationAT&T Global Network Client for Windows Product Support Matrix January 29, 2015
AT&T Global Network Client for Windows Product Support Matrix January 29, 2015 Product Support Matrix Following is the Product Support Matrix for the AT&T Global Network Client. See the AT&T Global Network
More informationBook Review. The Divorce between Brent and the Oil Prices. Feb. 6 2012 - Energy. By Salvatore Carollo
Book Review Feb. 6 2012 - Energy The Divorce between Brent and the Oil Prices By Salvatore Carollo The Fondazione Eni Enrico Mattei (FEEM) is a non-profit, nonpartisan research institution devoted to the
More informationMonetary Policy of the Bank of Russia
Monetary Policy of the Bank of Russia Ksenia Yudaeva, Ph.D., First Deputy Governor Geneva, February 25 2 Inflation Targeting in Russia: Motivation & Challenges Motivation: Unanchored inflation Expectations
More informationUsing the Futures Market to Predict Prices and Calculate Breakevens for Feeder Cattle Kenny Burdine 1 and Greg Halich 2
Introduction Using the Futures Market to Predict Prices and Calculate Breakevens for Feeder Cattle Kenny Burdine 1 and Greg Halich 2 AEC 2013-09 August 2013 Futures markets are used by cattle producers
More informationCommodity Futures and Options
Understanding Commodity Futures and Options for Producers of Livestock and Livestock Products CIS 1100 The Authors Larry D. Makus, C. Wilson Gray and Neil R. Rimbey* Introduction Risk associated with an
More informationSTEO Supplement: Why are oil prices so high?
STEO Supplement: Why are oil prices so high? During most of the 1990s, the West Texas Intermediate (WTI) crude oil price averaged close to $20 per barrel, before plunging to almost $10 per barrel in late
More informationLake Hill Crude Oil Market Update
Lake Hill Crude Oil Market Update Oil markets are experiencing forced hedging, unwinds and de-risking by both producers and consumers, exacerbating the recent spike in volatility. This distressed trading
More informationTrading Station / MetaTrader 4 Product Guide 2 October 2015. Page 1 of 15
Trading Station / MetaTrader 4 Product Guide 2 October 2015 Page 1 of 15 Notice This product summary should be read in conjunction with our Terms of Business. Whilst every effort has been made to ensure
More informationRobeco High Yield Bonds
Important Information 1. Robeco High Yield Bonds (the Fund aims to provide long term capital growth. The Fund invests at least two thirds of its total assets in bonds, asset backed securities and similar
More informationImpact of low crude prices on refining. February 2015. Tim Fitzgibbon Agnieszka Kloskowska Alan Martin
Impact of low crude prices on refining February 2015 Tim Fitzgibbon Agnieszka Kloskowska Alan Martin The recent fall in crude oil prices has coincided with both higher and lower profitability in the downstream
More informationThe recent volatility of high-yield bonds: Spreads widen though fundamentals stay strong
Investment Insights The recent volatility of high-yield bonds: Spreads widen though fundamentals stay strong Kevin Lorenz, CFA, Managing Director, Lead Portfolio Manager of TIAA-CREF's High-Yield Fund
More informationMeasurement and Mitigation of Market Power in Wholesale Electricity Markets
Measurement and Mitigation of Market Power in Wholesale Electricity Markets Frank A. Wolak Department of Economics Stanford University Stanford, CA 94305-6072 wolak@zia.stanford.edu http://www.stanford.edu/~wolak
More informationCBO STAFF. UNDERSTANDING THE VOLATILITY OF OIL PRICES DURING THE IRAQ-KUWAlT CRISIS. January 1991
CBO STAFF MEMORANDUM UNDERSTANDING THE VOLATILITY OF OIL PRICES DURING THE IRAQ-KUWAlT CRISIS January 1991 CONGRESSIONAL BUDGET OFFICE SECOND AND D STREETS, S.W. WASHINGTON, D.C. 205 15 This staff memorandum
More informationTrading Station II / MetaTrader 4 Product Guide 12 November 2012. Page 1 of 14
Trading Station II / MetaTrader 4 Product Guide 12 November 2012 Page 1 of 14 Notice This product summary should be read in conjunction with our Terms of Business. Whilst every effort has been made to
More informationThe Short Dated Interest Rate Market Trading JIBAR Futures
JOHANNESBURG STOCK EXCHANGE Interest Rates The Short Dated Interest Rate Market Trading JIBAR Futures JIBAR Futures are Short Term Interest Rate (STIR) Futures based on the 3-month JIBAR (Johannesburg
More informationComments on Energy Markets
Comments on Energy Markets Philip K. Verleger, Jr. Volume I, No. 1 May 16, 27 Impacts of Passive Commodity Investors on Energy Markets and Energy Prices Wall Street has made commodities a new asset class.
More informationControl over oil markets, once the province of the major
How B Y P HILIP K. VERLEGER, JR. Wall Street Controls Oil And how OPEC will be the fall guy for $90 oil. THE MAGAZINE OF INTERNATIONAL ECONOMIC POLICY 888 16th Street, N.W. Suite 740 Washington, D.C. 006
More informationIntroduction to Weather Markets. Charles Piszczor
Introduction to Weather Markets Charles Piszczor March 22, 2012 Basic Overview Types of Weather Products Settlement Procedures Margining 2 CME Alternative Investments Weather Hurricane Rainfall, Snowfall
More informationMGEX Agricultural Index Futures and Options
MGEX Agricultural Index Futures and Options 07 Crop Outlook and Int l Durum Forum Minot, ND 1 Thank you very much for having me here. I would like to acquaint you with a new set of risk management tools.
More informationThe Fuel and Vehicle Trends Report January 31, 2014
ISSN 1948-2388 The Fuel and Vehicle Trends Report This report is a summary of the latest fuel prices and other oil industry key statistics. In addition, this report provides the latest trends in vehicle
More informationMechanics of the Futures Market. Andrew Wilkinson
Mechanics of the Futures Market Andrew Wilkinson Risk Disclosure Options and Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading
More informationIntroduction to Futures Contracts
Introduction to Futures Contracts September 2010 PREPARED BY Eric Przybylinski Research Analyst Gregory J. Leonberger, FSA Director of Research Abstract Futures contracts are widely utilized throughout
More informationTrading Power Options at European Energy Exchange (EEX) Copyright 2015 All rights reserved Page 1
Trading Power Options at European Energy Exchange (EEX) Copyright 2015 All rights reserved Page 1 Agenda 1. Explanation of Options 2. Option products on EEX 3. Margin calculation 4. Advantages of using
More information... as if the world wasn t complicated
What lies ahead??? Options on Futures and Indexes... as if the world wasn t complicated enough already!! 2014 Gary R. Evans. May be used only for non-profit educational purposes only without permission
More informationVariance swaps and CBOE S&P 500 variance futures
Variance swaps and CBOE S&P 500 variance futures by Lewis Biscamp and Tim Weithers, Chicago Trading Company, LLC Over the past several years, equity-index volatility products have emerged as an asset class
More informationCurrency Option Markets and Exchange Rates: A Case Study of the U.S. Dollar in March 1995 Allan M. Malz
July 1995 Volume 1 Number 4 Currency Option Markets and Exchange Rates: A Case Study of the U.S. Dollar in March 1995 Allan M. Malz Some market observers attribute the dollar s recent drop against the
More informationCorporate and Investment Banking. Standard Bank Africa Commodity Index Exchange Traded Note
Corporate and Investment Banking Standard Bank Africa Commodity Index Exchange Traded Note Introduction to Commodities as an Asset Class 2 The Standard Bank Africa Commodity Index 4 Standard Bank s Blue
More informationAnalysis of Whether the Prices of Renewable Fuel Standard RINs Have Affected Retail Gasoline Prices
Analysis of Whether the Prices of Renewable Fuel Standard RINs Have Affected Retail Gasoline Prices A Whitepaper Prepared for the Renewable Fuels Association Key Findings Changes in prices of renewable
More informationMcDep Energy Income Producers A Weekly Analysis of Royalty Trusts and Master Limited Partnerships February 10, 2004.
Trusts as Futures Summary and Recommendation Recommended royalty trusts offer an alternative to futures contracts for investors looking for long-term growth in oil and gas commodity value or for protection
More informationThe interplay of physical and financial layers in today's oil markets
Master of Advanced Studies in International Oil and Gas Leadership The interplay of physical and financial layers in today's oil markets Giacomo Luciani IEA Energy Training Week Paris, April 5, 2013 The
More informationThe S&P 500 and Asian investors
The S&P 500 and Asian investors CME Group s Flagship S&P 500 Equity Index Futures Contract July 2015 Equity Index Futures on the S&P 500 CME Group s flagship equity index product CME Group E-mini S&P 500
More informationNATURAL GAS PRICES TO REMAIN AT HIGHER LEVELS
I. Summary NATURAL GAS PRICES TO REMAIN AT HIGHER LEVELS This brief white paper on natural gas prices is intended to discuss the continued and sustained level of natural gas prices at overall higher levels.
More informationEnergy Option Contract. Product Disclosure Statement
Energy Option Contract Product Disclosure Statement Issued by: Westpac Banking Corporation ABN 33 007 457 141 Australian Financial Services Licence Number: 233714 Dated 10 June 2008 Contents Important
More information