Oil Trading Manual : A Comprehensive Guide to the Oil Markets

The Oil Trading Manual (OTM) provides a unique and comprehensive reference source to the latest developments in the structure and conduct of the international oil markets including: Physical characteristics and refining Oil pricing arrangements Physical oil markets Forward and futures contracts Options and swaps Operations and logistics Accounting and taxation Controlling financial risk Legal and regulatory control OTM provides a unique and comprehensive reference source to the structure and conduct of the international oil markets. The manual covers all the major oil trading instruments and their applications; the trading centres, contracts, uses and users of both the physical and the terminal oil markets, and their administrative, management, tax, and accounting implications. It also includes vital information on changes to the international legal and regulatory structures. The manual is divided into three complementary parts; Characteristics An introduction to oil and oil trading, and includes material on the nature of oil as a commodity, refinery processes and the different ways in which oil is priced. Instruments and markets Deals with the oil market itself taking each segment in turn, explaining how the various trading instruments work and describing the markets that have evolved to trade them. It starts with the physical oil markets, moving on to forward and futures markets, followed by options and swaps. Administration Covers the essential 'back-room' activities without which oil trading could not continue. It includes practical material on operations and logistics, credit control, accounting, taxation, contracts and regulation, and controlling financial risk, providing a unique guide to the subject. Compiled from the contributions of a range of internationally respected professionals, it is the indispensable practical companion for all those involved with trading in this complex commodity. Revised and updated 2003 How to go to your page......Page 2 Contents......Page 7 Contributors......Page 13 Abbreviations......Page 21 Introduction......Page 25 Acknowledgements......Page 27 Part 1: Characteristics......Page 29 1.1 Why oil is traded......Page 31 1.2 Trading characteristics of oil......Page 33 1.3 Structure of the oil market......Page 43 2 Physical characteristics and refining......Page 49 2.1 Introduction......Page 51 2.2 Uses of oil products......Page 53 2.3 Pricing......Page 57 2.4 Properties of oil products......Page 61 2.5 Crude oils......Page 69 2.6 Oil refining......Page 75 2.7 Environmental factors......Page 95 2.8 Measurement, sampling and testing......Page 99 Appendix......Page 103 3 Oil pricing arrangements......Page 117 3.1 Types of pricing mechanism......Page 119 3.2 Fixed prices......Page 123 3.3 Floating prices......Page 131 3.4 Applying pricing mechanisms......Page 137 3.5 Sources of price information......Page 143 Part 2: Instruments and markets......Page 8 4 Crude oil markets......Page 153 4.1 Introduction......Page 155 4.2 North Sea......Page 157 4.3 Mediterranean......Page 169 4.4 West Africa......Page 179 4.5 United States......Page 185 4.6 Middle East......Page 193 4.7 Asia Pacific......Page 207 4.8 Latin America......Page 217 Appendix......Page 229 5 Product markets......Page 249 5.1 Introduction......Page 251 5.2 Europe......Page 253 5.3 United States......Page 269 5.4 Asia Pacific......Page 289 Appendix......Page 309 6 Futures and forward contracts......Page 317 6.1 Introduction......Page 319 6.2 What are futures and forward contracts?......Page 321 6.3 The pricing of futures and forward contracts......Page 327 6.4 How are futures and forward contracts used?......Page 333 6.5 Conclusions......Page 343 7 Forward paper markets......Page 345 7.1 Introduction......Page 347 7.2 Structure and organisation......Page 349 7.3 Europe......Page 355 7.4 United States......Page 365 7.5 Arab Gulf and Far East......Page 371 7.6 Future developments......Page 377 Appendix......Page 379 8 Oil futures exchanges......Page 389 8.1 Introduction......Page 391 8.2 The oil futures exchanges......Page 399 8.3 Delivery procedures......Page 413 8.4 Options on oil futures......Page 423 8.5 Clearing mechanisms......Page 425 8.6 Future developments......Page 427 9 Options......Page 431 9.1 Introduction......Page 433 9.2 What is an option?......Page 435 9.3 Using options......Page 451 9.4 Pricing options......Page 459 Appendix......Page 473 10 Swaps......Page 477 10.1 Introduction......Page 479 10.2 What is a swap?......Page 481 10.3 Pricing swaps......Page 495 10.4 Using swaps......Page 505 10.5 Future developments......Page 515 11 Long dated oil markets......Page 517 11.1 Introduction......Page 519 11.2 Market participants......Page 521 11.3 Market liquidity......Page 527 11.4 Trading instruments......Page 531 11.5 Pricing models......Page 535 11.6 Contractual issues......Page 543 11.7 Using long dated derivatives......Page 545 11.8 Conclusions......Page 561 Appendix......Page 563 12 Operations and logistics......Page 575 12.1 Introduction......Page 577 12.2 Scheduling......Page 579 12.3 Bookouts......Page 583 12.4 Nomination and documentation......Page 591 12.5 Inspection......Page 593 12.6 Demurrage......Page 595 12.7 Shipping operations......Page 597 12.8 Terminals, trans-shipment and storage......Page 603 Appendix......Page 609 13 Credit control......Page 617 13.1 Why is credit control necessary?......Page 619 13.2 Assessing credit risk......Page 625 13.3 Limiting financial exposure......Page 629 13.4 Methods of credit monitoring......Page 635 Appendix......Page 641 14 Accounting......Page 655 14.1 Introduction......Page 657 14.2 Accounting guidance......Page 659 14.3 General principles......Page 661 14.4 Futures contracts......Page 663 14.5 Forward contracts......Page 677 14.6 Swaps......Page 681 14.7 Options......Page 689 14.8 Physical hedges......Page 693 14.9 Disclosure requirements......Page 697 14.10 Conclusions......Page 703 15 Taxation of oil trading......Page 705 15.1 Introduction......Page 707 15.2 United Kingdom......Page 709 15.3 United States......Page 719 15.4 Singapore......Page 727 15.5 United Kingdom taxation of trading instruments......Page 737 15.6 The UK PRT nomination scheme......Page 743 Appendix......Page 747 16 Contracts......Page 751 16.1 Introduction......Page 753 16.2 General......Page 755 16.3 Express terms......Page 761 16.4 Implied terms......Page 807 16.5 Incorporated terms......Page 813 Appendix......Page 819 17 Legal and regulatory issues......Page 831 17.1 Introduction......Page 833 17.2 International......Page 835 17.3 United States......Page 857 17.4 United Kingdom......Page 867 17.5 Singapore......Page 877 Appendix......Page 879 18 Controlling financial risk......Page 885 18.1 Why risk control is important......Page 887 18.2 Characteristics of the energy market......Page 889 18.3 Valuation of trading positions......Page 903 18.4 Determination of risk......Page 921 18.5 Operations......Page 935 18.6 Conclusions......Page 939 A......Page 941 B......Page 942 C......Page 943 D......Page 946 F......Page 947 H......Page 949 I......Page 950 L......Page 951 M......Page 953 O......Page 954 P......Page 956 R......Page 958 S......Page 959 U......Page 962 V......Page 963 Z......Page 964 The Oil Trading Manual (OTM) provides a unique and comprehensive reference source to the latest developments in the structure and conduct of the international oil markets including:

• Physical characteristics and refining
• Oil pricing arrangements
• Physical oil markets
• Forward and futures contracts
• Options and swaps
• Operations and logistics
• Accounting and taxation
• Controlling financial risk
• Legal and regulatory control

OTM provides a unique and comprehensive reference source to the structure and conduct of the international oil markets. The manual covers all the major oil trading instruments and their applications; the trading centres, contracts, uses and users of both the physical and the terminal oil markets, and their administrative, management, tax, and accounting implications. It also includes vital information on changes to the international legal and regulatory structures.

The manual is divided into three complementary parts;

Characteristics An introduction to oil and oil trading, and includes material on the nature of oil as a commodity, refinery processes and the different ways in which oil is priced.

Instruments and markets Deals with the oil market itself taking each segment in turn, explaining how the various trading instruments work and describing the markets that have evolved to trade them. It starts with the physical oil markets, moving on to forward and futures markets, followed by options and swaps.

Administration Covers the essential 'back-room' activities without which oil trading could not continue. It includes practical material on operations and logistics, credit control, accounting, taxation, contracts and regulation, and controlling financial risk, providing a unique guide to the subject.

Compiled from the contributions of a range of internationally respected professionals, it is the indispensable practical companion for all those involved with trading in this complex commodity.

Revised and updated 2003 Annotation The Oil Trading Manual (OTM) provides a unique and comprehensive reference source to the latest developments in the structure and conduct of the international oil markets including: Physical characteristics and refining Oil pricing arrangements Physical oil markets Forward and futures contracts Options and swaps Operations and logistics Accounting and taxation Controlling financial risk Legal and regulatory control OTM provides a unique and comprehensive reference source to the structure and conduct of the international oil markets. The manual covers all the major oil trading instruments and their applications; the trading centres, contracts, uses and users of both the physical and the terminal oil markets, and their administrative, management, tax, and accounting implications. It also includes vital information on changes to the international legal and regulatory structures. The manual is divided into three complementary parts; Characteristics An introduction to oil and oil trading, and includes material on the nature of oil as a commodity, refinery processes and the different ways in which oil is priced. Instruments and markets Deals with the oil market itself taking each segment in turn, explaining how the various trading instruments work and describing the markets that have evolved to trade them. It starts with the physical oil markets, moving on to forward and futures markets, followed by options and swaps. Administration Covers the essential 'back-room' activities without which oil trading could not continue. It includes practical material on operations and logistics, credit control, accounting, taxation, contracts and regulation, and controlling financial risk, providing a unique guide to the subject. Compiled from the contributions of a range of internationally respected professionals, it is the indispensable practical companion for all those involved with trading in this complex commodity This comprehensively updated edition of Oil Trading Manual (OTM) covers all the major oil trading instruments and their applications; the trading centres, contracts, uses and users of both the physical and the terminal oil markets, and their administrative, management, tax, and accounting implications.