Downstream Supply and Trading
This downstream oil and gas overview discusses what we talk about in our popular ‘What is Downstream’ course which also covers the Oil and Gas downstream Supply and Trading.
learn more about Oil & Gas Downstream Supply and Trading With Oil 101
learn more about our Online Oil and Gas Training Courses
Supply and Trading
Supply and trading and risk management is the section.
I’m going to talk about it in two basic pieces.
One is the physical stuff, because you can do physical trading, the other is the paper and financial side. The hedging side. The paper is important because that’s the way we manage volatility.
I’ll cover a tributary supply network, some of the physical supply and trading tops, and we’ll talk about spot markets and sources of this price information, this volatile price information. Then volatility we’ll cover separately.
What we’re trying to do is manage risk around the entire supply chain.
Crude prices change, refinery margins are volatile, transportation is volatile, product pricing is volatile. There’s nothing straight and level in the system.
In this, you’ll hear it, supply and trading, S & T, you’ll hear ST & T – supply and trading and transportation, the company I’m working with, Motiva calls it STL – supply and trading logistics.
These are the folks who get the stuff to the refinery, they don’t run the refinery, but they get the stuff out of the refinery. They’re basically the barrel and gallon movers. They’ll have a little bit of influence by telling the refinery on what’s best available and what crude you should run, but the actual inside-the-plant-operation is done by the plant.
The commercial people handle crude acquisition transportation, bulk distribution that we’ve talked about, and they go all the way to the end of the terminal.
They don’t handle that final truck going the last mile.
They may say we have this much gasoline available in the Houston market and then a distribution function picks up and takes it from there.
The key to all this is they really watch the inventory. The key indicator of what’s going on is the inventory.
Supply and Trading Example:
The first thing most companies do is organize around what I call a tributary supply network of interest. I pick a refinery or two that are in the same path or same location. I know its capacity and I know its type and I know it can run domestic crude out of west Texas. It can run foreign crude.
The other thing it can run is a thing called feed stock. If I don’t have enough stuff to make gasoline with out of my crude, I can bring in a feed stock to help supplement my gasoline pool. This is the input side of the refinery.
Then I worry about the movements. How do I get the stuff out and we already talked about this. Pipeline, marine, rail car, tank, truck and I get up to here at the storage point, the terminals.
There’s terminals that I own, there’s terminals that colonial pipeline owns, there’s terminals that are owned by a third party that I work out of them on a lease basis.
Company called GATX for example owns a lot of terminals and, you’re Exxon, they lease space to you in that terminal. I watch as I say the inventory and the dispatch and this function really ties it all together.
By the way, this arrow should also include the crude supply, but they basically tie it all together and they’re watching the off take. The wholesale off take. They’re not watching the retail gasoline site. They’re watching what goes out of the terminal at the rack.
The first thing they could do is do some physical trading.
There’s 3 types of physical trading:
There’s a location trade where I can save some pipeline or transportation cost to improve my margin.
There’s a quality trade where I can save some refining blending costs and improve margin.
There’s a timing trade.
I’m going to go through each of these separately so you get a feel for what’s going on. I can supply customers during the shutdown and manage differentials.
The first one is the location trade, or called an exchange.
This is very, very common in fuel products. I’m BP, and I have a refinery in the US Gulf Coast. I have my terminal up in Baltimore that’s supplied by colonial pipeline. It takes about 2.3 cents a gallon to move my product along the colonial pipeline.
I have a buddy named Shell and Shell comes to me as BP and says to me, “My refinery at Deer Park has got a unit down. Can you supply me some gasoline in the Gulf Coast?” I’m BP, and I say, “Sure, but if I do that, can you supply me gasoline back in Baltimore?” “Well, yeah, I’m actually in pretty good shape in Baltimore. I’d be happy to supply it.”
This is an exchange.
There’s no transportation cost associated with this. Everybody wins. We save 2.3 cents a gallon on a location trade. Extremely common. The company I’m working with right now, Motiva, moves 5 times as much on exchange than they move through the regular moving the stuff through the system, so very, very common.
In addition to all those really efficient pipelines we’ve got around the country, we’ve got this thing called an exchange that saves a lot of transportation cost.
Now, why does Colonial care that I do this? They don’t care because somebody else is going to keep that pipeline full.
That’s a location issue. Pretty straightforward and simple.
Quality Trade
The second one is a little trickier. This is called a quality trade. The value is different because of a different type of refinery.
There’s a simple refinery which doesn’t have a lot of these hydro crackers and big heavy units on it. Because it doesn’t have that, I have to add additives and a whole bunch of other stuff to get my gasoline from 87 octane to 92. A lot of this is because I’m not doing it with my units. I’m doing it with additives or blending or whatever.
BP, I’ve got this really great complex refinery. It’s a lot more expensive to build, but I can produce premium gasoline for only a cent a gallon.
Because I’ve invested in equipment, I don’t have to add so much additives. Let’s just use that as a simple explanation.
Again, Shell says to BP, “I’m short of 92 octane, can you supply me some 92 octane?” BP says, “Sure, if you’ll give me some 87 octane back.”
Well, I got a lot of 87 because I don’t want to go to 92. What would probably happen is we go half the distance to the goal on the difference in cost and say, “I’ll do it for a cent and a half.” I make a half a cent and Shell saves half a cent and this is another quality trade that goes on in the industry.
You can use a quality trade when you use a location trade. There’s a whole difference. This thing gets more complicated. I’m trying to not make it overly complicated, but this also happens quite often, so I don’t have to invest in equipment. This could be a 2, 3 year deal. I don’t have to invest in any equipment. BP’s going to cover me and I’m going to give them my lower grade of gasoline.
All the time you’re keeping track of your exchange delivery and your exchange receipt. It’s kind of like in the old days balancing your checkbook.
Somebody is keeping track of those volumes each day, each month, et cetera.
The other thing you’re keeping track of is the pricing on the time which we’re going to talk about in a minute because my exchange, my location, I’m going to give it to you in January and may not take it back until March. The prices are different. How are we going to handle that price differential? Let’s keep that for another subject.
The last one is timing.
This is to balance inventory and meet demand during a turnaround. A turnaround is the term for a major maintenance project in a refinery.
Here I am, Chevron, and I product 100,000 barrels of gasoline a month. March, April, May, June, but in April, my refinery’s going to be shut down, but I still have to supply my service stations.
I go to Shell and I say to Shell, “Will you lend me 100,000 barrels of gasoline in April.” Shell said, “Yeah, but I got to start building that in March to make sure you have it. I’m going to try to get it to you in April and cover you and usually when you have a turnaround, you’d like to make sure you get it done in May, but sometimes they go longer than you think.”
Shell will probably project a surplus for 2 months and then when Chevron comes back up and can rebuild inventory, they’ll repay them back.
This is a timing trade, and again, pricing will be different, volumes will be different, all that kind of stuff.
This is what your commercial department is doing in the morning.
Morning Meeting
Almost every group that I’ve ever been with has a morning meeting where they look at all the terminals associated with the refinery or in pad or I’m in Chicago or I’m the Midwest guy or gal or I’m the east coast guy or the east coast is so big, I’m the north east coast guy watching all the terminals, not just mine, but the other guy’s because they have all these crazy exchanges.
It is a very big deal.
I’ve done 3 projects with Hess and Hess is not big here in the Gulf Coast retail wise, but they were one of the biggest retail marketers in the northeast until they just sold their stuff off and controlled the heating oil market in the northeast.
In fact, Mr. Hess founded his company by delivering heating oil to New York out of a small tank truck and built it up to one of the world’s biggest oil companies, which is another whole story.
Anyway, I would sit in that morning meeting with those guys and gals, watching the terminals and oh yeah, the ship arrived late, how are we going to supply it, or Colonial batch was off spec, what are we going to do? What you’re trying to constantly do is keep you customers supplied.
Whether that customer be a service station, whether that customer be a commercial customer, because they’re dependent on you … they’re dependent on you getting that fuel delivered to that spot.
Comment
Speaker 2: You’re right. As a former scheduler, time trades are critical. If you’re a marine person scheduling ships or barges, weather is always goofing up your program and just generally speaking from memory if you were pulling a Nigerian barrel out by ship, depending on the speed of the ship, it was be 15 to 18 days to get from Nigeria to the Gulf, so you can imagine the weather delay so the time could come in handy.
You could go back to your commercial trader and they’d facilitate pipelines. Not so much weather, but you could get pinch points in given markets so they could put you on an allocation progression and you can’t ship as much as you did the previous month. It’s cut back to say 80%. These time frames come up pretty often. Pretty common.
Continued..
One thing that makes trading so simple in the business is oil and gas is the largest physical commodities market. Much bigger than corn, much bigger than soybeans, much bigger than wheat.
There are bulk trades. 25,000 barrels. This is a Dr. Seuss, you can trade it in a ship, you can trade it in a pipeline, you can trade it in a barge, you can trade it in a refinery, you can trade it wherever the heck you want.
There’s all kinds of availability of physical trades.
Very moving target because the pricing but there are pricing services that make the prices quite transparent post Enron and the timing is these deals are done in less than a month on a spot deal basis.
Each market is characterized differently.
There’s global markets with many trades. There’s a lot of buyers and sellers on a direct basis and there’s a lot of buyers and sellers that are brokers and traders. You have the law of large numbers working here. Huge number of transactions.
The pricing services, you’ll hear Platts, Argus, Reuters, Bloomberg, your own personal contacts. These are what you hear on TV all the time. Platts closing price of WTI.
It’s not like your stock market in trading stocks. These services call people to find out what the prices are. There’s no gigantic bulletin board in the sky. A lot of what they’re doing is getting pricing in information from clients.
A company will have a price server because some days the prices are good, some days the prices are not so good, this number looks out of whack, so you have a whole bunch of algorithms to make sure you’re getting the right price.
The last price I want to talk about is OPIS.
This is rack pricing. This is at the rack, around the country gasoline, diesel in Chicago, in Wichita, you name it.
This service was just sold to IHS for I think 3.2 billion dollars or something like that and they just had gone out and IHS has decided that they want to control that pricing service.
If you want to make a deal, you have plenty of opportunities to make the deal. That’s what this whole thing is about.
There’s spot markets out there. Global supply and demand drives the spot market prices. These are markets that have a lot of transactions. USGC is the US Gulf Coast. A lot of transactions recruited in product. New York Harbor, I gave the example of Hess.
These are global spot market drivers. ARA is Amsterdam, Rotterdam and Antwerp over here in here in the Med. Here’s the Mediterranean, here’s the Arabian Gulf, then there’s gigantic regional spot markets. I mentioned earlier Singapore, Japan, I think South Korea now, the whole West Coast is called a regional spot market because it’s kind of contained.
You can move from the Gulf Coast to the West Coast but it’s a trick, so most of the west coast is handling the Alaskan crude and any crude that’s coming in from the Middle East.
These spot market prices are available. They’re on pricing services and they’re on the pricing services that I talked about earlier.
Here’s some of the examples. Reuters, Bloomberg Terminal, DOW Jones, real time pricing. Additionally, they have real time pricing on freight as we talked about a little bit earlier, on marine freight, not on pipelines.
I don’t know what they did on rail to be honest with you. I might have to investigate that. I don’t know how much the rail prices fluctuated.
Then there’s daily closeout reports of Platts oil price report, petroleum Argus. If you ever go into a commercial group, the first thing they do is receive the Platts oil price report.
Everybody gets a copy of it. Still old school.
Argus is the same.
Then there are some groups. Here’s OPIS Rack pricing that comes in a bit differently, and Kiodex was a company that was trying to pull in global market data. I don’t think it’s around anymore. Then they do weekly summaries.
A lot of these are now done electronically, petroleum weekly oil bios guide and Argus weekly.
The reason this is important, for 2 reasons.
One is that the spot market is so important because it enables us to move barrels around the world.
The second is we want spot market pricing for any term contract. In other words, if I’m going to make a deal with you for 3 years to supply you gasoline, there’s no way I’m going to do that at a fixed price.
I’m going to say I’ll give it to you for 3 years and we will price every cargo monthly at the spot market price at the time. We’re not sure about which spot market price you use, so we’re going to say we’re going to take Platts plus Argus divided by two because they all use a little bit different source.
You mention 18 days to get from Nigeria. Transit time, so we’re going to price it half the distance to the goal. We’re going to price it 9 days out from Nigeria because that’s halfway … that way, the seller and the buyer share their risk.
This is what is happening on the physical trade and the pricing side.
Discussion:
Speaker 2: I have seen, and I may be a little dated, but when you buy domestic crude at the wellhead you can do a formula off Platts, on average, but they still have postings on some areas.
A dominant player like the Eagle Ford say Flint Hills which is the Koch Industry’s family, they would have a posting in a giving area. It wouldn’t be an obscure crude, it would be fairly large large volume in a given region.
Postings today are still pretty popular.
Speaker 3: How can you track the postings?
Marty Stetzer: They’re published.
Speaker 2: They’re put out … literally, back in the old days they were mailed now it’s all electronic. You get a posting and then depending on the gravity there’s a slight deduction to sort of normalize or equalize.
Speaker 3: Is that something …
Speaker 2: So many cents per degree.
Speaker 3: Is that something that’s tracked by the … who would gather than information? The posting.
Marty Stetzer: The producer, right?
Speaker 2: Yeah, your marketing department would I guess would gather 2 or 3 in the area.
Speaker 3: Then they would report it to the commission or …
Speaker 2: It’s not that sophisticated. Really it would be let’s say plains is a gathering company that has trucks and markets, they would be your buyer so your agreement or contract would be to hold the crude and sell the crude they would say we’re going to base it on a Platts average formula.
They would tell you we’re going to pay highest major posting of these 2 or 3 in a given field.
Marty Stetzer: Right.
Speaker 2: That kind of equalized. Then depending on the quality, if you’ll adjust on a sliding scale on posted basis.
Marty Stetzer: On our quality differential. Gravity.
Speaker 2: Right.
Marty Stetzer: Good. Any other comments?
It’s really easy to do this stuff. There’s so many markets, there’s so many buyers, there’s so many sellers. You’re trying to maximize the continuity of supply to your customers.
In a refinery situation, you’re trying to maximize the continuity of the crude to the refinery. Refineries don’t like to move up and down in their throughput capacity. They like to run straight and level. Simple crude formulas or consistent crude formulas.
This commercial department, that’s their job. They’re kind of the shock absorber of all this other stuff that goes on.
Speaker 2: What you just talked about because I think I see your next slide. This all in what’s called the physical market or the wet barrel market.
Marty Stetzer: Right.
Speaker 2: Nothing to do with future [inaudible 00:22:37]
Marty Stetzer: Options.
Speaker 2: Options.
Marty Stetzer: This is where it gets hairy.
Speaker 2: Yeah.
Financial Trading
Financial trading is often called hedging. Why do we hedge?
This is one example. 10 years of the daily change, daily change for New York mercantile exchange, non-mixed gasoline. Look at this. In cents a gallon, in the 90s, it was 0 to 2 cents 4 cents. Look at it. It’s 10 cents a gallon, bouncing around every day.
I have another one for crude that I won’t pull up, but crude’s gone even crazier. Large, large price swings.
The short term drivers are any supply disturbance that’s out there. Remember if we had a problem in the SNWW we could have gasoline prices increase 20 cents a gallon.
Years ago, in the ship channel, a freight anchor hooked onto Colonial Pipeline and pulled up and kinked the pipeline. Gas prices jumped 20 cents a gallon and 80 cents in one day.
You’ll often hear on the news, I mean maybe you guys don’t watch the same news that I do, but the inventory data, crude inventory data, product inventory data, we have a lot of gasoline, all this affects the swings in volatility.
Trading is what we just talked about.
Any commodity transaction related to its physical characteristics. The location trade, the quality trade, moving the barrels.
Hedging is a transaction that offsets that physical position with the intent and the effect to reduce financial exposure to market risk.
Let me try that again.
Offsets the physical position with the intent and effect to reduce financial exposure to market risk. That price volatility.
I’ve got an example here.
When you fly, in 2008, 30% of an airline’s operating cost is fuel. Crude prices started falling.
I’m an E & P company. Crude prices on my right hand side in dollars per barrel, and airline stock indicators on my left hand side. Here’s the green line on crude price. Again, this is 2008, but you’ll get the point.
Crude went from like $35 a barrel to $20 a barrel, so crude price is dropping. The green line is dropping. If I’m an airline, that is really great news because my jet fuel just went down.
The yellow line is USO. It’s an exchange created security, or ETF, of WTI light sweet crude.
This is the DOW Jones airline index. As crude prices went down, airline stocks went up.
If you have Exxon in your portfolio, in your retirement portfolio, which is one of the great deals, the minute crude price starts dropping, buy United Airlines. Did I do this? Of course not. How many times have I not done this? Forever.
This is a hedge, so if have a portfolio of stocks, I want to keep this line nice and level. I don’t want to make a ton of money. I just don’t want to lose any. Had I bought the index, my portfolio would have been straight and level.
That’s hedging. Does that make sense?
When crude prices go up, what do we do with the airline stocks?
Sell, right.
There’s a catch. Discussion:
Speaker 2: When the Saudis came out Thanksgiving, November of 2014, the prices started softening. Within a few months I bought some Southwest Airlines stock. The two reasons.
One that you just mentioned about jet kerosene and they’re well run and they’re getting into international areas.
What I overlooked a little bit, still not a bad investment, is hedging, because the airlines today have commercial apartments that hedge, and I’ll let you explain that further, their jet fuel supply, so it’s not quite as instantaneous as what you see. They’ve hedged.
They’ve bought on the future, so it takes a few months or their high cost jet fuel to run through their supply.
That make sense? It’s not quite as instantaneous. You have to be patient.
Marty Stetzer: Well let me try. We’re getting there. I’m Mary’s producer and I see crude price dropping.
What’s that going to do to my economics? I’m going to fire people. You’ll hear they’re hedging production. You hear it over and over. Here’s my crude price line. 30, 60 days, it’s starting to go down.
I can go to buy a paper hedge on the Nymex to offset that drop. I’m not trying to make money on this, but I’m not trying to lose money on this. I really want my crude price to be straight and low. That’s the whole objective of hedging.
This is two very simple unit. That’s what’s going on here. Does that make sense?
What happens if crude price goes up and I got one of these? I’m dead.
You have to watch this every day. If you guess wrong … by the way, the other thing you do in that inventory meeting, after you get all the inventory squared away, you get all the physical squared away, they have all these morning meetings before the Nymex opens.
Which way is gasoline price going to go today, or over the next week?
I think it’s going to go up, I think it’s going to go down, I think it’s going to go up. This is not a science, by the way.
They say the consensus is it’s going to go down, we’ve ought to put a hedge in place where the consensus is. It’s going to go back up.
We’ve got to get rid of that hedge that we have on. Your commercial group is doing the physical and also the paper side of the business.
I’m just going to introduce you to some of the terms here, not some of the strategies.
The basic strategy, as a producer, you’re trying to keep your crude revenue level.
As a refiner, you would like to keep your crude purchases level.
I’d like to keep my cost of my gasoline straight and level and if it goes up and goes down it’s the same thing but the whole deal is you’re trying to be straight and level.
That’s if you’re what people call a physical system supply trader. I can be a trader, I can just buy these things and hope they’re going to continue to go up, or Vitol and Glencore, they don’t own any assets. They buy oil and they hedge it. They rent a tanker. They don’t have a refiner.
They’re guessing the way the market’s going. They are spec trader. The only oil company I know that has a spec trading division is BP and they keep it totally separate from the other parts of the organization.
Shell, Exxon, Chevron, all they’re trying to do is keep their system supply straight and low.
How do we do this?
There are 2 major exchanges.
One is called ICE, ICE, Intercontinental Exchange, which has turned out to be one of the biggest electronic exchanges in the country, and the CME Globex which now controls Nymex.
You don’t only do this with energy, you do it with metals, you do it with gold, you do it with cotton, you do it with soybeans, you do it with heating oil, you do it with everything.
There’s 3 types of contracts and they’re all called derivatives.
A futures contract, and I have an example in the next page, a forward contract, and an option.
These 2 are done on an exchange. These others are done off the exchange.
In other words, I’m a producer, and you’re a bank, and I have production in the Gulf Coast and I’m Hess and I need $200 million to build a platform. I go to CitiBank and I say I will need $200 million and they will not lend you that money unless you hedge that production.
Which means okay, it’s currently $40 a barrel. I’ll hedge it at 50. You’ll write that contract. You’ll give me that risk. As long as it’s 40 or so, I’m in good shape. If that crude price goes way up, you make the money, I don’t.
That’s the other wrinkle on these hedges is just they can impact your balance sheet.
Southwest had hedged jet fuel contracts. Guessed the wrong direction and got hit with the cost of the hedge when they guessed the wrong direction.
This is still very, very big business.
I’ve put these into your book just for reference. A futures contract, standard agreement between buyer and a seller. Some future time, specific location. These are just standard contracts.
You can go to Nymex or ICE and print one off.
A forward contract, legal agreement between buyer and seller for the purchase and sale of a commodity under mutually agreeable conditions, that’s the one you and I just talked about.
An option is exactly like a stock option. The right, not the obligation to purchase or sell the asset, but you don’t have to put up the whole value of the asset, you put up the price of an option.
Why is all of this important?
The daily futures contracts for oil and products are 2 to 3 times the annual physical volume sold in the US.
Huge number of transactions.
The law of large numbers says that this futures market knows more about the market than the actual physical market.
The futures market drives the spot price which drives the wholesale rack price which has an impact on the retail price.
It’s not the refinery guys making all this stuff and it’s not the Saudis and it’s not Southwest Energy, it’s these wizards who have all these screens and the arms waving that establishes this stock price.
Doug Example
My son Doug, before he became a web wizard, was in the brokerage world for 8 or 9 years with Man Financial so Doug joins and he’s on the phone and he’s hedging this and buying that and I said, “Hey, Doug, you need my fundamentals of downstream training stuff.” He said,
“Well, send me the slides.” Sent him the slides. Didn’t hear anything from him for a week. I call him and I said, “What do you think?” He’s my polite son. He says, “Dad, this is really good stuff, but if you can’t send me something that’s going to help me in about the next 15 minutes would you mind holding it until the weekend?”
The other thing Doug told me which is kind of neat is they’ve turned it into a video game. You can go on the Nymex tomorrow and buy a futures contract on crude oil with none of the underlying assets.
Maybe a third or more of the transactions are day traders.
Speaker 2: Now at some point in time, correct me if I’m wrong, I’m a crude oil but I know better than products. If you’re trading in the future’s market, you have to close that out in the physical. Where do you close it? Cushing.
Marty Stetzer: That’s right.
Speaker 2: You want from 6 terminals in the last 4 or 5 years to 14 individual terminals, tank farms, in Cushing, Oklahoma, where WTI, as you mentioned. You used a different term. I called it benchmark. You used a different term.
Marty Stetzer: Marker. At Cushing, Oklahoma.
Speaker 2: Marker, crude, so you have to close that out physically.
Mark to Market
In the trading department, too, at the end of every day, you have to do what they call a mark to market report.
Speaker 2: Balance.
Marty Stetzer: Balance out the physical report, balance out the paper. At the end of the month, post Enron, you have to publish that.
Speaker 2: Oh, post Enron.
Marty Stetzer: Post Enron, yeah.
Speaker 2: So it’s kind of like the Federal Reserve in theory.
Marty Stetzer: Somewhere.
Speaker 2: Same you have to have the physical crude to back the futures trading.
Marty Stetzer: That’s right.
Two principals.
The physical and the paper must be linked. Number one. Spot markets, physical trades, paper market and derivatives have to be linked across the entire chain.
I gave you a simple example. There’s a plethora of stuff. You can do a crude hedge. Again, this is a Dr. Seuss. You can do a crude hedge, you can do a product price hedge, you can do an inventory hedge, you can hedge the crack spread. You can do a marketing program hedge.
You can do a crush spread. The difference between ethanol and the price of corn because ethanol’s going in your gasoline.
Speaking of marketing program hedges, my sister in law Kathy lives up in New York State, north of New York City, and she buys heating oil because she doesn’t have natural gas.
People come around in September and said, “Kathy, I’ll guarantee you heating oil at today’s price.” Now, this is summer time. Heating oil’s done. What a great deal. What’s it going to cost me? Well, it’s going to cost you a little bit of a premium, you know, another cent a gallon or whatever it is. My sister in law Kathy is an authority on heating oil hedges.
They’re coming around to the house and saying, “I’ll supply heating oil at a fixed price plus a cent a gallon.”
Now, what’s that distributor doing? Okay, Kathy signs up. He’s going out into the market to hedge that because he won’t have to deliver it until the middle of the winter.
It sounds like it’s overly sophisticated, but the more you work with it, the more you start to get a feel for what’s going on.
Key supply and trading takeaways.
Number one, the tributary supply network of interest. Chicago and the refineries in Chicago move differently than the refineries in markets in the Gulf Coast.
Three common physical trades, location, timing and quality.
Crude and products largest physical commodity market.
We can use various hedges to offset risk.
Physical and paper derivatives must be linked
Electronic exchanges now dominate trading.
The New York floor is now closed. You use to do this physically with yellow pieces of paper, throwing them at each other and wearing these crazy vests.
When Doug started working there I got a tour of the floor. It’s all electronic now.
Daily futures traded 2 to 3 times the annual USA physical volume, large, long numbers is what really makes this thing work.
Related Resources:
What is the difference between Upstream and Downstream?
Drilling Wells for Oil and Gas and Offshore Drilling