Course SummaryThis course covers the advanced trading techniques applicable to the management of price risk in international oil trading. Through a variety of case studies, delegates will learn the techniques involved in trading and how to address day-to-day problems of managing the price risk associated with the role of producer, refinery or consumer with an integrated trading position. Much of the work will be carried out in syndicate groups where delegates will learn to develop and manage trading strategies designed to maximise corporate profitability and reduce exposure to losses arising from the price fluctuations. It is recommended that delegates should either have attended TR0 or TR1 or have a strong working knowledge of the subjects covered in these courses.
After reviewing the background of supply, refining and transportation, the course focuses on the key markets, pricing and the mechanisms involved in trading. Aspects of the various exposures encountered in trading are covered. Advanced trading instruments of swaps, CFDs and options are presented in detail, both from a theoretical and practical point of view, giving the delegates an insight into the application of these instruments in the development and management of a successful trading strategy. Syndicate exercises will address each skill required, providing the delegate with the essential tools and knowledge to successfully manage the price and accompanying risks of their strategy. Additionally, during the week, in a continuous theme case study, each syndicate group will manage their own company positions of equity production, refining supply, product disposal and speculative trading, identifying the pricing risk of new positions and reacting to changing market prices which simulate a live situation.
24CPE creditsawarded for this course
What you will learn
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The significance of freight costs key to trading and how these may be hedged
How international crude oils and products are priced
How to trade in the futures and forwards markets
How to use and understand the EFPs, swaps and CFDs
Option theory and the factors affecting options trading
The management of price risk within trading positions through the application of hedging techniques
Freight hedging
The development and management of successful trading strategies for the producer, refiner and the consumer
The essentials of constructing purchase/sale contracts and arising exposures
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Suitability:
The content of TR2 is such that delegates who consider attending TR2 will ideally either be experienced in the basic principles of International Oil Trading or have attended either of the appropriate introductory International Oil Trading courses (TR0 or TR1) at The Oxford Princeton Programme or elswhere. Trading personnel who need to increase their knowledge of derivatives, personnel within the back or mid-offices, interacting daily with the trading function, staff who interface with the trading sector and require a better understanding of trading practice such as management accounting, controllers, treasury or supply functions and professionals in associated fields (e.g. legal and banking) who wish to increase their knowledge of practical derivatives used by the oil industry.
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Introduction
- Physical markets
- Forward markets
- Futures markets
- Liquidity
- Price volatility
Crude Oil and Product Markets
- Why trade?
- Supply/demand
- Ho- the markets work
Shipping and Freight
- Freight and Worldscale
- Demurrage
- Freight hedging
Refining
- Overvie- of processes
- Yields and netbacks
Pricing
- Price reporting
- Pricing mechanisms
- Price risk
Contracts
- Outline structure and clauses
- Issues and problems
Product Trading
- Ho- to sell a cargo
- Brokers and traders
- Trading strategies
- World product markets
- Arbitrage
- Product specs and quality
- Implied values of quality
- Intermediate valuation
Crude Trading
- Trading strategies, putting on a position/taking it off
- The world of crude oil markets and ho- they work
- Market fundamentals
- Hedging and basis risks
- Pricing techniques
- Contract risks
- Arbitrage
- Term deals
- Counterparty evaluation/selection
Futures Markets
- The exchanges and the contracts
- Commissions/brokers
- Margining/span
- Delivery versus cash settlement
- Delivery - ADP, EFP
- Limit up/down
- Open interest/volume
- Basis risk
- Trading strategies with futures
Technical Analysis
- Charting
- Statistical/rule based
Other Risks and Exposures
- Credit control and exposure
- Bill of Lading and letters of indemnity
- Demurrage
- Inspection, loss and demurrage claims
- Quality disputes
Introduction to Advanced Instruments
- Spreads and basis trading
- CFDs and swaps
- Options
Basis Risks
- Grade (Brent v. WTI)
- Region (Med. V. US Gulf)
- Time (Spot v. +1)
- Contact (Forward v. Futures)
Swaps
- The markets
- Contracts for Differences
- Pricing mechanisms
- Trading strategies
- Swaps v. Futures or Forwards
- Margining
- Master swap agreement
Traded Options
- Terms used
- Puts and calls
- Buying v. selling
- Risk v. obligations
- Simple trading strategies
- Option valuation and Black Scholes
- In/out of money
- Premiums
- Instrinsic values and time values
- Volatility historic and implied
- Significance of, gamma, delta, vega, theta
- OTC Options, American, Asian, European
Trading Strategies
- The producer
- The refiner
- The consumer
- The management and assessment of pricing risk
Case Studies and Exercises Include:
- Freight and netback
- Purchase/Sale of products
- Arbitrage
- Negotiating a term crude oil deal
- Hedging of term deal
- Handling non performance
- Executing an EFP
- Managing ongoing positions
- Executing a CFD
- Traded options
- Refiner risk management
- Producer risk management
- Consumer risk management
