Introduction to Trading and Oil Price Risk Management

Duration:5 DAYS

Unit One examines physical trading economics in depth. Delegates will learn how to negotiate and cost deals, calculate profitability, charter a ship and examine the contractual aspects of trading. They will make decisions as part of a crude oil and refined product trading team, maximizing profits through an understanding of the economics of trading and the management of inherent price risks.

Those attending Unit Two will build a sound understanding of the markets, gain practical experience in selecting and using a variety of risk management instruments, and learn strategies for their use in hedging and price management. This course will also cover the value of optionality, management control, and risk measures. As part of a trading team, delegates will identify and manage the price risks of their trading book. They will trade the full range of derivative markets, most of them in real-time, using prevailing market prices from Reuters, Platts, and Petroleum Argus. As market conditions change, delegates will compare the performance of different instruments and learn to choose the appropriate one to meet their objectives.

WHO SHOULD ATTEND

Unit One will benefit anyone coming into trading from elsewhere in the industry; those in supply and marketing functions looking for a wider understanding of the market; those in oil companies, banks, law firms, accountancy practices, the media, market regulators, financial services, and elsewhere who interface with traders and trading.

Unit Two is beneficial to those with a prior understanding of physical markets or who have taken Unit One and wish to learn more about derivatives and hedging. In addition it will benefit hose who interface with risk management in the industry; and those from banks, accountancy practices, and law firms.

LECTURE SESSIONS

UNIT ONE: INTRODUCTION TO TRADING
(2 DAYS)

INTRODUCTORY MATERIAL

  • Introduction to trading and markets
  • Price reporting
  • Pricing mechanisms

CRUDE OIL TRADING

  • International pricing of crude oils
  • Crude oil trading
  • Brent / BFOE market

PRODUCTS TRADING

  • Mechanics of trading products
  • Oil Brokering
  • Costings
  • Valuing product quality

CONTRACTS AND TRADING

  • Negotiating a deal
  • Writing a contract
  • Calculating the profitability of deals
  • Contango and backwardation

PROCESSING

  • Introduction to processing deals

CHARTERING AND FREIGHT

  • Calculating freight costs using worldscale
  • Chartering a ship

PERFORMANCE AND CREDIT

  • Client / Counterpart risk
  • Payments and credit risk

UNIT TWO: OIL PRICE RISK MANAGEMENT
(3 DAYS)

RISK IDENTIFICATION

  • Identifying risks in a corporate position
  • Quantifying exposure
  • Contango and backwardation
  • Liquidity and basis risk

RISK MANAGEMENT INSTRUMENTS AND MARKETS

  • Futures markets
  • Forward markets
  • BFOE and dated brent markets
  • CFDS / DFLS
  • Swaps and OTC markets
  • Role of the market maker
  • Comparison of instruments

OPTIONS

  • Exchange and OTC Options
  • Options Strategies
  • Tailored Swaps and Embedded Options

OPTIONALITY

  • Identifying and valuing optionality in the oil markets

RISK MANAGEMENT TECHNIQUES

  • Hedging with futures, swaps, and forwards
  • Hedging with options
  • Spread trading
  • Basis risk
  • Structured instruments
  • Comparing hedging strategies
  • Hedging in practice

PRICE MANAGEMENT

  • Exchange for physical
  • Trigger pricing

TRADING CONTROLS

  • Clearing and exchanges
  • Value at risk
  • Management Control

INSTRUCTORS