Oil Trader Academy

Day 1

Fundamentals of oil and gas

Basic principles

· Upstream marginal and average costs

· Capital intensity

· Exploration and Production

· Crude oil characteristics

· Refining

· Oil industry structure

· Oil price volatility

The geography of oil and gas

Oil demand

· Global demand growth

· Shifting balances between OECD and Non-OECD

· The changing balance of products

Oil Production

· Major producing regions

· Production trends

· Oil trade

· Major oil trade flows

OPEC

· The role of OPEC

Modelling the oil market

· Why do we want to model the oil market?

· Modelling demand

· Oil price determination

· Oil inventories

Oil market outlook

· What drove oil prices to $150/bbl in 2008 – Futures of fundamentals?

· What stopped the collapse early in 2009?

· What is driving the price rebound?

· Where will oil prices go from here?

· Is oil price stability possible?

Day 2

An overview of supply and demand balances

· Growth of shale in the US

· Increase of non-OECD demand

· The change in oil flow

Crude oil trading – what to look for, and where the value lies

· Assay evaluation versus gross product worth

· What a refiner looks for

· Long-term contracts and spot markets and who is involved

Crude oil pricing

· The benchmarks and why they exist

· The value of the differential

· Arbitrage cargoes

Trading simulation

· Teams bid to buy a cargo of crude oil

· Application of theory developed earlier in the day

Day 3

Understanding the Brent complex

· Brent futures versus Brent Forwards

· Brent forwards versus Dated Brent

· The value of time and North sea supply and demand

Capturing market information

· Price discovery and transparency

· The market on close assessment process

· Looking at the information available to all market participants

Understanding the price risk involved in crude oil trading

· B/L pricing versus average of the month

· Market structure

· Trading structure through CFD market

Selling the cargo to a refiner

· Using the knowledge of freight costs teams offer the cargo to refiners

· B/L pricing – NOR pricing – average of month pricing

· Hedging the cargo and managing price risk

Day 4

The refiner processes the crude oil and sells the products

· An overview of the refining industry and processes

· Simple versus complex refining

· What a trader is looking for

Product usage and product quality

· Usage defines quality requirements

· Qualities differ in the world

· Quality optimisation by traders

Hedging product risk

· The need for the swap contract

· Contract structure

· Use in trading

Hedging the refinery margin

· Crude pricing versus product pricing

Day 5

— Legal Contracts: Types, Issues & how to manage them

· The Players

· Crude Oil Market Structure

Long-Term Contracts

· Issues with change of circumstances

· Spot Market Contracts

· Characteristics of the market

· Areas of markets

· Standard terms

FOB Crude Oil Contracts

· Free on board

· Duties of seller and buyer

· Passing of property

CIF Crude Oil Contracts

· Cost, insurance and freight, variations, out-turn clause

· Terms relating to deliver on arrival

· Duties of seller and buyer

· The goods, quantity and quality

· Shipment period and place, appropriation, shipping documents, tender of documents, passing of property

Delivery Terms
Price and Pricing Formula
Shipping Procedure
Payment

Legal Aspects

· Text and email contracts

· Bills of lading, letters of credit, letters of indemnity, performance bonds

· Nomination

· Laytime and demurrage

· Certificates of quantity, quality and originality

· Taxes, charges and expenses

Warranties

· Free of encumbrances, right to transfer

Dispute Resolution
Lifting and Balancing Agreements

Module 2: Trading Simulation, Paper Trading & Price Risk Managemen
4 August – 8 August 2014, ICE Futures Europe • London, UK

Day 1

Understand what drives the Brent futures price

Trading Best Practice

· Trading best practice and discipline

· Useful trading rules

Physical Products, Freight and FOB/CIF

· What are Refined Products and their main uses

· How are Products priced and traded

· Understand Worldscale and Freight rates

· How to trade Products cargoes on a FOB and CIF basis

Physical Products Trading Simulation

· Manage a portfolio of physical Products longs and shorts

· Negotiate and enter deals, book ships, manage cargo movements

Physical Crude Trading

· How Crude Oil is produced and exported

· What determines the value of different Crude Oils

· How Crude Oil is priced and traded, benchmark pricing

Physical Crude Cargoes Trading Simulation

· Buy and Sell cargoes of North Sea and West African Crude Oil

· Understand how refinery yields affect Crude differentials

· Appreciate the importance of liquidity in physical Crude markets

Day 2

Introduction to Refining

· Basic Crude distillation and complex refining

· Refinery Optimisation activities

· Calculate Refinery margins and Crude pecking orders

Refining Simulation

· Manage a Refinery: Buy Crude and sell Products

· Calculate Refinery margins and adjust run rates accordingly

· Optimise your Refinery, switch Crudes as prices change

Spreads and Backwardation/Contango
• What are spreads and how are they calculated
• Why do traders use spreads
• Market structure – Contango/Backwardation

Time Spreads Simulation

· Trade upto 3 different spreads on European Gas Oil

· Understand how spreads react to fundamental news

Storage Valuation and Optimisation

· Contango markets: What do “carry” and “full carry” mean

· Valuing Storage and hedging Storage trades

· Optimising Storage: Intrinsic and Extrinsic value

Storage Valuation Exercise

· Value Storage offers and bid for capacity

· Design and execute hedging strategies for your storage

Storage Optimisation Simulation

· Use futures to manage a portfolio of physical oil and tankage

· Move oil in and out of storage as you react to market structure

· React to the volatility of time spreads and maximise extrinsic value

Trading Futures using Technicals

· Why use technical trading

· Common indicators used in technical trading; Trendlines; Moving

Averages; Line/Candlesticks/Bar/Point & Figure; Retracements; Continuation and Reversal signs; Volume and Open Interest

· Examples of Technical Trades in current markets

· Technical Charting Simulation

Trade techincals using Tradesignal’s professional chart analysis software

· Spot trends and use indicators to identify trade entry/exit points

Day 3

Floating Prices and Hedging

· What is meant by a floating price

· Calculating the daily hedge, and forward pricing profiles

· Managing pricing risk on a portfolio of trades

Hedging Physical Cargoes Simulation

· Respond to new trades and manage the basic daily hedge

· Adjust hedges as BL dates and quantities change

Swaps and Hedging Spread Exposure

· What is a swap, and how are they traded

· Using swaps to manage risk and create trading strategies

· Differential swaps and CFD’s

· Managing spread exposure

Hedging with Swaps Simulation

• Respond to new trades and manage a complex daily hedge
• Use swaps and futures contracts to manage risk

Geographies and Arbitrage Spreads

· Regional supply/demand and its effect on spreads

· Spread trading strategies

Gas oil Arbitrage Spreads Simulation

· Trade the futures spread between Europe and U.S.

· Understand the impact of local supply/demand and physical arbitrage

· Hedging Physical Arbitrage Trades

· How to calculate and identify Arbitrage opportunities

· Relative volatilities: Futures, Cargoes and Freight

· Using futures to hedge Arbitrage movements

Arbitrage - Worked Example

· Use of a spreadsheet to calculate and monitor Arbitrage values

· Placing an Arbitage trade: Volatility, liquidity and order of trades

· Trans-Atlantic Crude Arbitrage Simulation

· Calculate Arbitrage opportunities across a portfolio of Crude Oils

· Place all the trades necessary to Arbitrage Crude Oil cargoes

Day 4

Using the paper derivative markets

· Derivative instruments & hedging

· Practical: Hedging exercises

· Basic risk

· Basis trading

Spread trading

· Time

· Crack

· Arb

· CFD’s & DFL’s as part of the mix

· Using the EFP & EFS mechanisms

· Case Study practical:

· Hedging as a producer

· Hedging as a refiner

· Hedging as a consumer

· Trigger pricing

Day 5

How can Options become part of your trading portfolio

· Options 101

· Inputs to the premium and pricing

· Practical: Hedging exercises

· Time & Volatility

· The greeks

· Options trading strategies

· Practical: Trading with Options