1 / 20

Energy Market Tutorial

Energy Market Tutorial. Presented by Company Webb. Energy Discussion Topics. Basic Definitions Exploration and Production Energy Supply and Demand Petroleum Refining Energy Commodity Trading Physical versus Financial Trading New York Mercantile Exchange Trading Terminology Conclusion.

Sophia
Télécharger la présentation

Energy Market Tutorial

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Energy Market Tutorial Presented by Company Webb

  2. Energy Discussion Topics • Basic Definitions • Exploration and Production • Energy Supply and Demand • Petroleum Refining • Energy Commodity Trading • Physical versus Financial Trading • New York Mercantile Exchange • Trading Terminology • Conclusion

  3. Basic Definitions • Petroleum refers to crude oil or the refined products obtained from the processing of crude oil (gasoline, diesel fuel, heating oil, etc) • Natural gas is a nonrenewable source of energy used for heating and generating electricity

  4. Basic Definitions • Crude oil is measured in barrels • 1 barrel = 42 gallons • Natural gas is measured in British Thermal Units (BTU) • 1 BTU = amount of heat energy required to raise 1 lb of water by 1 degree Fahrenheit • Gasoline is measured in gallons • 1 gallon of gasoline = 124,000 BTUs

  5. Exploration and Production • Oil and natural gas were formed from the remains of animals and plants that lived millions of years ago in a marine (water) environment before the dinosaurs • Over the years, the remains were covered by layers of mud • Heat and pressure from these layers helped the remains turn into crude oil, natural gas, and coal

  6. Energy Supply • The world’s top 5 crude oil producing countries are: • Saudi Arabia • Russia • United States • Iran • China • About 59.5% of petroleum used in the U.S. comes from other countries

  7. Energy Supply • Most of the natural gas consumed in the United States is produced in the United States • There were 394 active underground storage fields in the Unites States in 2005 • The Federal offshore Gulf of Mexico and 5 states accounted for 77.1% of natural gas production in 2005

  8. Energy Demand • In 2005, total US petroleum demand was 20.8 million barrels per day • In 2004, the 3 top petroleum consumers were: • United States • China • Japan • Approximately 22% of US energy consumption comes from natural gas

  9. Petroleum Refining • A refinery takes crude oil and turns it into gasoline and hundreds of other useful products • Products from crude oil include gasoline, diesel fuel, heating oil, jet fuel, and asphalt

  10. Petroleum Refining • Products made from a barrel of crude oil

  11. Energy Commodity Trading • Commodities can be traded either physically or financially • Physical trading involves the “actual delivery” and receipt of the commodity • For example, Company A agrees to deliver 100 barrels of crude oil to Company B at a specific location and price today • Financial trading involves “contracts” for future delivery • For example, Company A agrees to deliver 100 barrels of crude oil to Company B at a specific location and price at some time in the future • Delivery and receipt only required if contract expires and holder hasn’t offset (e.g. sold/bought contract to/from another person)

  12. Energy Commodity Trading • Physical vs. Financial • Under a physical transaction, delivery and receipt of the commodity is required for each party at a time shortly after the transaction date (e.g. for natural gas, delivery/receipt may be required the next day) • Under a financial transaction, each party is obligated to deliver and receive the commodity at some time in the future • Trader not obligated if the contract position is offset to another party before the contract expires • The contracts that are traded are financial derivatives that derive their value from the underlying commodity

  13. Energy Commodity Trading • The New York Mercantile Exchange (NYMEX) is a regulated exchange that facilitates the trading of financial energy commodity contracts (i.e. futures contracts) • NYMEX provides liquidity, price transparency, and credit to the buyer and seller of the contract • NYMEX also acts as “clearinghouse” to each transaction • Buyer buys from NYMEX • Seller sells to NYMEX

  14. Terminology • Energy trading is no different than stock or bond trading • A trader forms a market view and takes the corresponding position • If trader believes that prices will rise (bullish), the trader should buy low, then sell high • If trader believes that prices will fall (bearish), the trader should sell high, then buy low • A trader’s position is either long or short • If long, the trader has bought more contracts than he has sold • If short, the trader has sold more contracts than he has bought

  15. Terminology

  16. Terminology • The New York Mercantile Exchange requires the holder of a futures contract to post margin • Margin is similar to the collateral that your lender would require for a loan • Margin requirements change as the price and volatility of the commodity change • A rule of thumb is that margin requirements are about 10% of the contract value

  17. Terminology • The terms of a futures contracts are standardized for each transaction • Volume • $/unit • Delivery/Receipt Location • Each commodity contract has its own specific terms:

  18. Crude Oil Example • Trader buys contract when crude is $60/barrel • Since trader buys contract, he expects prices to rise (I.e. bullish) • NYMEX requires trader to post margin (if 10% of contract value, then $6,000) • Trader owns a contract worth $60,000 • Trader sells contract when crude is $80/barrel • NYMEX releases margin (assumed to be $6,000) • Trader sells a contract worth $80,000 • Trader profits by $20,000 because he bought a contract for $60,000 and sold for $80,000

  19. Crude Oil Example • The trader only needed $6,000 to make $20,000 in this example • Trader could have lost $20,000 if prices fell to $40/barrel • Compare this example to stock investments • Trader buys 100 shares of ABC stock at $60/share (100 shares * $60/share = $6,000) • Trader sells 100 shares of ABC stock at $80/share • Trader profits by $2,000 (100 shares * $20/share)

  20. Conclusion • The energy markets have attracted many investors over the last decade • Energy prices are extremely volatile • Volatility creates both risk and opportunity • Not suitable for everyone • Contact info@energymarketmaker.com for more information

More Related