The Use of Advanced Instruments in International Oil Price Risk Management

This course addresses the risks associated with oil trading focused on price. Building on material taught in TR1, this course covers the more advanced aspects of price risk management. Case studies will address each technique used in the management of risk. The course commences with a half-day fast track recap of the key issues covered in TR1 prior to moving into the key issues – the identification of risk, the tools available and the mechanisms used to manage it. The theory and mechanics of advanced instruments including swaps, CFDs, traded and OTC option are explained. Their use in developing effective trading strategies is discussed and practiced in detail.

A case study with a continuous theme will also allow each group to manage a portfolio of their own group positions. Delegates will have the opportunity to trade both structured and live markets. It is recommended that delegates should have attended TR1 or have a strong working knowledge of the subjects covered in that course.

What you will learn

• Risks associated with oil trading
• The management of price independent of the physical deal
• The trading of paper markets in hedging and price management
• Trading strategies with futures
• Use of technical analysis
• Option theory and the behaviour and use of traded options
• Swap markets and strategies
• The theory and applications of CFDs
• The behaviour and use of over-the-counter (OTC) options
• The trade with EFPs
• To trade the forward curve
• Trading strategies appropriate to market participation of a producer, refiner and consumer

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Personnel who have recently entered trading and need to increase their knowledge of derivatives and personnel in associated industries who wish to increase their knowledge of practical derivatives used by the oil industry.

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Introduction

• Physical, forward and futures markets
• Market structure
• Freight

Basic Risks

• Correlation and selection of hedge
• Spread trading and trading market structure

Futures Markets

• Trading strategies with futures
• Crack spreads
• EFPs

Swaps

• The swap markets
• Swap trading strategies
• Hedging with swaps versus futures or forwards
• Swap valuation
• Hedging with Contracts for Differences
• CFDs and the Dated Brent market

Traded Options

• Buying versus selling, the risk versus obligations
• Option valuation and the Black Scholes equation
• Synthetic options
• Intrinsic and time values, historic and implied volatility
• Significance of gamma, delta, vega, theta
• Delta hedging and the option trader’s perspective

OTC Options

• American, Asian, European
• Collars, straddles and strangles
• Swaptions
• Successful trading strategies for producers, refiners and consumers

The Trading Manager’s Dilemma

• Risk assessment and management
• Legal and regulatory aspects
• Credit and counterparty risk
• VAR - value at risk
• Establishing trading limits
• Monitoring trading positions

Technical Analysis

• Charts, patterns and formations
• Statistical/rule based

Case Studies and Exercises Included:

• CFDs
• Swaps
• EFPs
• Technical analysis
• Traded options
• Refiner risk management
• Producer risk management

Faculty

Robin A Burley is principal consultant with Kennet Oil Logistics, a company established in 1990 providing expertise in the international supply, trading and transportation sector. During his 30 years experience in the oil industry he has worked with BP including Marine and Supply Departments, and Gulf Oil including Trading and Transportation, Refining and Marketing functions. Besides the day-to-day management and negotiation of oil supply, trading and transportation deals, he has been involved in a variety of oil logistics projects throughout the world. He has lived in the USA, Europe and the Middle East, and is a contributing author to the Oil Trading Manual (pub. Woodhead 1995).

Testimonials

“Little plays help you understand concepts/etc - very good fun also.” P.J., Chevron Texaco

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