This course covers the basic principles of oil trading and the markets. Through a variety of specific exercises, delegates will learn the techniques involved in trading and how to address day-to-day problems. The course focuses on the key markets, pricing and the mechanisms involved in trading. Aspects of the various exposures encountered in trading are covered together with hedging and price risk management techniques. Syndicate exercises will address each skill required. Over the course, syndicate groups will manage their own company positions in live trading situation

• Module 1 – The Evolution of International Oil Pricing System – The Big Picture

  • Introduction and Evolution of Crude Oil Pricing System
  • The Era of the Posted Price
  • The Pricing System Challenged by Independent Oil
  • The Emergence & Consolidation OPEC Administered Pricing System
  • The Changing Landscape for IOC’s/NOC’s
  • The Collapse of the OPEC Administered Pricing – Net Back Pricing
  • The Market-Related Oil Pricing System and Formulae Pricing

   

  • Spot Markets, Long Term Contracts and Formula Pricing
  • Benchmarks in Formulae Pricing
  • Oil Price Reporting Agencies and Price Discovery Process
  • The Brent Market and its Layers
  • The US Benchmarks
  • The Dubai-Oman Market

  Module 2 – Trading Physical Crude Oil and its Logistics

  • Trading Fundamentals and Trading Terminology
  • Impact of Production Sharing Contracts and its components – Fiscal Tools, Cost Recovery Component, Profit Oil Component, Royalty and Tax, Tax Implications – Ring Fencing, Market Price
  • Joint Operating Agreements
  • Transportation Agreements – Tariffs, Value Adjustment Mechanism, Terminal Logistics, Floating Platform Storage Operations
  • Crude Oil Lifting Agreements
  • Marine Vessel Nomination
  • Physical Sales and Purchase Agreements
  • Freight Contracts – Freight Costs, Laytime and Demurrage

   Module 3 – The Dissection of Crude Oil Price

  • First Component – the Absolute Price
  • What are Benchmark crudes – Brent, WTI, ASCI, Dubai/Oman, TAPIS and ESPO
  • Criteria for Ideal Benchmarks • The Regulation of Benchmark Crudes
  • Determination of Absolute Value of Crude – Forwards and Future, Brent Chains, Credit Security and Forward Market
  • The Futures Market and Absolute Value of Oil – Initial Margin, Variation Margin, Physical Delivery, Exchange for Physical Delivery
  • Hedging the Absolute Value of Crude Oil – Basic Hedging Theory, Practical Considerations, Dated Brent Risk Hedged with Forward Brent Contract, Floating Priced Hedging
  • Speculation

  Module 4 – Oil Price Formula – The 2nd Component – Time Differential • Arbitrage • Swap – the “Contract for Difference”

  • What is the right time to set the price?
  • What goes on when two traders transact a deal?
  • CFD and the time value in Oil Price
  • Value Fixation • Floating Fixing or Hedging value of Oil
  • Hedging and the Slope of the Forward Oil Curve
  • The Term Contract Pricing of Oi

  l Module 5 – Oil Price Formula – The 3rd Component – Grade Differential

  • The Crude Oil Grade
  • The Crude Oil Quality
  • The Crude Discount • The Refining Assay – Paraffinic, Naphthenic, Refining processes
  • The Gross Product Worth
  • Location and Freight

   Module 6 – Price Risk Management – Hedging the Crude Oil Price

  • The Types of Risks
  • The Strategic Hedging
  • Operational Hedging
  • Risk Management Considerations – Correlations and Basis Risk, Tax Basis Risk

At the end of this course, participants should be able to:

• A full understanding of the international oil markets, the market drivers and principal players, and the factors in price formation for crude and products.
• Knowledge of a full range of trading techniques; in depth understanding of price exposure and the various instruments which can be used for dealing with price, credit and shipping risk.
• The opportunity for practical application of the knowledge gained through specially designed exercises, and trading on the live markets.
• A detailed appreciation of contract terms and conditions, together with the opportunity to negotiate and work with other delegates from a large range of organisations and cultures

• This course will benefit Oil company staff who interface with the oil trading sector and require a better understanding of trading practice, such as operations, accounting, financial control, treasury, supply or production functions. Those in the legal and banking fields who want a better understanding of trading practice