The world crude oil markets have witnessed one of the sharpest price declines in decades. This has come about mostly due to the supply response of the largest crude oil exporting bloc of countries, the Organisation of Petroleum Exporting Countries (OPEC), to growing Unites States crude output. The falling crude oil prices have put pressure on high cost crude producers such as the US and Brazil. However, can this downward trend be sustained? Would OPEC members, some of which are high cost producers such as Venezuela, remain united in their decisions to “manage” prices given their differing national objectives? This course will give students a historical perspective on the crude oil markets, the influence of geopolitics on them, the impact that crude oil’s properties have on its price, crude oil production economics, how policy changes have impacted the demand for crude oil and processing technologies and the role played by logistics and transportation to the cost of crude oil.
Crude oil is processed in a refinery to produce a variety of products, such as transportation fuels, that are referred to as refined products. It is the demand for these refined products that drives the demand for crude oil. Given its import to the global hydrocarbon industry, a structured framework to understanding the refined products markets is warranted. This is the purpose of this course. It is designed to provide participants with an understanding of the characteristics of the refined products, their key areas of use and how environmental concerns have driven refined product specifications. Students will also become conversant with the global demand trends for the major products from the refinery complex, which are the major refining centres across the globe, product trade flows and product logistics and transportation. Given this backdrop of the dynamics of the refined products markets and discussion of refinery technology, the fundamentals of refining economics will be discussed.
The crude oil and refined petroleum product markets are amongst the most mature commodity markets in the world. And this maturity brings with it complexity. The buying and selling, i.e. trading, of these commodities in an efficient and profitable manner requires a market participant to have, amongst other things, a deep understanding of how the crude oil markets and refining industry function; how commodity pricing mechanisms emerge; the roles played by national oil companies (NOCs), international oil companies (IOCs), financial institutions and governments; the implications of seasonality of demand; and the impact of refining technology on the refined product slates. The purpose of this course is to demystify the complexity that is commodities trading and acquaint its participants with the risks associated with trading in this mature commodities market. The course participants will gain insight into how an experienced trader would look to mitigate risk along the value chain, which includes logistical and operational risks.
The crude oil markets, being the most mature of the energy markets, have attained a level of financialization that allow market participants to hedge their trading positions at a relative low cost. This ‘paper’ market is much bigger than the physical market. In the case of crude oil, less than twenty percent of paper barrels are settled physically. And any individual looking to have a successful career as a commodities trader has to, amongst other skills, develop a sound understanding of the mechanics of derivatives trading; the pricing mechanisms for the different instruments (swaps/futures/options); the role of the various market participants, such as traders, national oil companies (NOCs), international oil companies (IOCs), financial institutions and governments; the impact of liquidity of the different paper markets; and technical analysis for derivatives trading. This course will equip its participants with a practitioner’s perspective on navigating the risks faced by a ‘paper’ commodities trader.