Contango, Backwardation and Convenience yield are the important concept in FD. These concept indicates the relation between spot price and future price in commodity market.
This document provides an overview of call and put options, including:
- Call options give the buyer the right to purchase an underlying asset at a specified strike price. Put options give the buyer the right to sell an underlying asset at a specified strike price.
- Options have an expiration date and are used for speculation or hedging. Speculators try to profit from price changes, while hedgers use options to reduce risk.
- The value of an option depends on the value of the underlying asset and volatility. At expiration, call options are worth the maximum of the asset price minus strike price and zero. Put options are worth the maximum of strike price minus asset price and zero.
- Buy
This ppt is prepared to provide detailed information regarding Forwards and Futures contracts of Derivatives the topics covered under this are Meaning of Forwards contracts, Underlying Assets of Forwards contracts, FEATURES OF FORWARD CONTRACTS, Tailored made, Why Forwards contracts, FUTURES CONTRACT, What is A Futures Contract, Characteristics of Futures contracts, Mechanism of Trading in Futures Market, Margin requirement, Marking-to-market (M2M), SETTLING A FUTURE POSITION, OFFSETTING, CASH DELIVERY, by Sundar, Assistant Professor of commerce.
Subscribe to Vision Academy for Video assistance
https://www.youtube.com/channel/UCjzpit_cXjdnzER_165mIiw
for full text article go to : https://www.educorporatebridge.com/derivatives/contango-and-backwardation/ our must have visited so many websites to get gist of contango and backwardation but at the end of your search; what do you get in your hand? This article will provide quality food to your brain and at the end of this article you will become a master of contango and backwardation.
The document provides an overview of the history and evolution of commodity markets and commodity futures trading. It discusses:
1) How commodity futures trading originated from the need to ensure supply of seasonal crops, with early examples like rice trading in Japan.
2) How organized commodity futures trading developed in Chicago in the mid-19th century to help farmers and dealers transact in agricultural goods.
3) The establishment of the Chicago Board of Trade in 1848 as the first commodity futures exchange, facilitating futures contracts for agricultural goods.
4) An overview of major international commodity exchanges today and the commodities traded on each, including the Chicago Mercantile Exchange, New York Mercantile Exchange, London Metal Exchange,
Technical and fundamental analysis on stock market Babasab Patil
The document discusses technical and fundamental analysis of securities. It provides an overview of technical analysis concepts like Dow theory, Elliot waves, and moving averages. It also discusses fundamental analysis, including economic, industry, and company analysis. Key company analysis factors mentioned include management, annual reports, ratios, and cash flow. The document outlines objectives to conduct technical and fundamental analysis of selected Indian stock market securities. It describes the research methodology as involving secondary data analysis and a sample size of 10 stocks for technical analysis and 4 for fundamental analysis.
The document discusses various types of options strategies that can be used in the stock market. It defines call and put options and provides examples. It also explains covered calls, bull spreads, bear spreads, butterfly spreads, and calendar spreads as options strategies. Bull spreads profit if the underlying stock rises, while bear spreads profit if the stock falls. Butterfly spreads seek limited profit from little price movement. Calendar spreads involve options of the same stock but different expiration months, aiming to profit from time decay of nearer dated options.
Commodity derivatives market, Types of commodities traded in Commodity market, Commodity exchanges in India, Multi Commodity Exchange (MCX), National Commodities and Derivatives Exchange (NCDE), National Multi Commodity Exchange of India Ltd (NMCE), How to trade in commodity futures in India, Most active commodity on MCX, Benefits of Commodity Market, Precautions and Tips.
This document provides an overview of derivative contracts, specifically forward and future contracts. It defines derivatives and describes how forward contracts are bilateral agreements between two parties to buy or sell an asset at a future date for a predetermined price. Future contracts are similar to forwards but are standardized and exchange-traded. The key differences between forwards and futures highlighted are that futures are traded on exchanges, require margin payments, follow daily settlement marked to market, and can be closed prior to delivery, whereas forwards are customized OTC contracts.
This document provides an overview of call and put options, including:
- Call options give the buyer the right to purchase an underlying asset at a specified strike price. Put options give the buyer the right to sell an underlying asset at a specified strike price.
- Options have an expiration date and are used for speculation or hedging. Speculators try to profit from price changes, while hedgers use options to reduce risk.
- The value of an option depends on the value of the underlying asset and volatility. At expiration, call options are worth the maximum of the asset price minus strike price and zero. Put options are worth the maximum of strike price minus asset price and zero.
- Buy
This ppt is prepared to provide detailed information regarding Forwards and Futures contracts of Derivatives the topics covered under this are Meaning of Forwards contracts, Underlying Assets of Forwards contracts, FEATURES OF FORWARD CONTRACTS, Tailored made, Why Forwards contracts, FUTURES CONTRACT, What is A Futures Contract, Characteristics of Futures contracts, Mechanism of Trading in Futures Market, Margin requirement, Marking-to-market (M2M), SETTLING A FUTURE POSITION, OFFSETTING, CASH DELIVERY, by Sundar, Assistant Professor of commerce.
Subscribe to Vision Academy for Video assistance
https://www.youtube.com/channel/UCjzpit_cXjdnzER_165mIiw
for full text article go to : https://www.educorporatebridge.com/derivatives/contango-and-backwardation/ our must have visited so many websites to get gist of contango and backwardation but at the end of your search; what do you get in your hand? This article will provide quality food to your brain and at the end of this article you will become a master of contango and backwardation.
The document provides an overview of the history and evolution of commodity markets and commodity futures trading. It discusses:
1) How commodity futures trading originated from the need to ensure supply of seasonal crops, with early examples like rice trading in Japan.
2) How organized commodity futures trading developed in Chicago in the mid-19th century to help farmers and dealers transact in agricultural goods.
3) The establishment of the Chicago Board of Trade in 1848 as the first commodity futures exchange, facilitating futures contracts for agricultural goods.
4) An overview of major international commodity exchanges today and the commodities traded on each, including the Chicago Mercantile Exchange, New York Mercantile Exchange, London Metal Exchange,
Technical and fundamental analysis on stock market Babasab Patil
The document discusses technical and fundamental analysis of securities. It provides an overview of technical analysis concepts like Dow theory, Elliot waves, and moving averages. It also discusses fundamental analysis, including economic, industry, and company analysis. Key company analysis factors mentioned include management, annual reports, ratios, and cash flow. The document outlines objectives to conduct technical and fundamental analysis of selected Indian stock market securities. It describes the research methodology as involving secondary data analysis and a sample size of 10 stocks for technical analysis and 4 for fundamental analysis.
The document discusses various types of options strategies that can be used in the stock market. It defines call and put options and provides examples. It also explains covered calls, bull spreads, bear spreads, butterfly spreads, and calendar spreads as options strategies. Bull spreads profit if the underlying stock rises, while bear spreads profit if the stock falls. Butterfly spreads seek limited profit from little price movement. Calendar spreads involve options of the same stock but different expiration months, aiming to profit from time decay of nearer dated options.
Commodity derivatives market, Types of commodities traded in Commodity market, Commodity exchanges in India, Multi Commodity Exchange (MCX), National Commodities and Derivatives Exchange (NCDE), National Multi Commodity Exchange of India Ltd (NMCE), How to trade in commodity futures in India, Most active commodity on MCX, Benefits of Commodity Market, Precautions and Tips.
This document provides an overview of derivative contracts, specifically forward and future contracts. It defines derivatives and describes how forward contracts are bilateral agreements between two parties to buy or sell an asset at a future date for a predetermined price. Future contracts are similar to forwards but are standardized and exchange-traded. The key differences between forwards and futures highlighted are that futures are traded on exchanges, require margin payments, follow daily settlement marked to market, and can be closed prior to delivery, whereas forwards are customized OTC contracts.
The document discusses various commodity derivatives markets and exchanges around the world. It provides details on the National Commodity and Derivatives Exchange of India (NCDEX) and Multi Commodity Exchange of India (MCX), including the commodities traded and clearing/settlement processes. It also summarizes information on the Tokyo Commodity Exchange (TOCOM) and contracts traded there such as gold and rubber. Finally, it outlines the Dalian Commodities Exchange in China and types of contracts traded including corn, soybeans, and crude soybean oil.
Asset allocation refers to how an investor distributes their funds across major asset classes like stocks, bonds, real estate, and cash. The document discusses three main asset allocation strategies: strategic asset allocation involves maintaining a long-term target allocation; tactical asset allocation aims to exploit short-term market changes; and insured asset allocation adjusts based on an investor's risk tolerance which may change with gains or losses. Successful asset allocation requires defining goals, assessing risk tolerance, creating a target portfolio, and periodic review/rebalancing.
A derivative is a financial instrument whose value is derived from the value of another asset, known as the underlying. There are three main types of traders in the derivatives market: hedgers who use derivatives to reduce risk, speculators who trade for profits, and arbitrageurs who take advantage of price discrepancies across markets. Derivatives can be traded over-the-counter (OTC) or on an exchange, and provide various economic benefits such as risk reduction and enhanced market liquidity.
This document provides an overview of various bullish, neutral, and bearish options trading strategies. It begins with a table of contents listing 27 bullish strategies, 25 neutral strategies, and 9 bearish strategies. It then provides a brief introduction to options, defining call options, put options, and describing option duration and moneyness. The document proceeds to explain 15 specific strategies in more detail, including long call, synthetic long call, short put, covered call, long combo, and others. Each strategy section defines the strategy, risks, rewards, construction, and provides an example to illustrate how it works.
The document discusses the efficient market hypothesis and random walk theory of stock prices. Some key points:
- Random walk theory states that stock price movements cannot be predicted from past prices and follow a random pattern. This implies markets are efficient.
- The efficient market hypothesis suggests that stock prices instantly reflect all available public information, making it impossible for investors to earn above-average returns.
- Empirical evidence provides mixed support for these theories. Studies of event periods find prices adjust rapidly to new information, but other anomalies like the size effect have been found, contradicting full market efficiency.
The document provides information on investment analysis, including definitions, methods, and concepts. It discusses two main types of analysis: fundamental analysis and technical analysis. Fundamental analysis examines basic company data like earnings, sales, and financial statements to determine a stock's intrinsic value. Technical analysis uses historical market data like prices and trading volumes to identify patterns that can predict future price movements. The document also covers the efficient market hypothesis, which proposes that stock prices reflect all publicly available information.
The document provides an overview of the Black-Scholes option pricing model (BSOPM). It describes the key assumptions of the BSOPM, including that the underlying stock pays no dividends, markets are efficient, and prices are lognormally distributed. It also outlines how the BSOPM can be used to calculate theoretical option prices from historical data on the stock price, strike price, time to expiration, interest rate, and volatility. The document discusses implied volatility and how it differs from historical volatility, as well as limitations of the BSOPM.
This document discusses various options trading strategies, including:
1. Long call - buyer is bullish on the underlying asset and pays a premium for the right to buy it at a set price.
2. Short call - writer is bearish and collects premium but has obligation to sell the asset if exercised.
3. Covered call - involves buying the asset and writing a call to generate income but limits upside.
4. Long put - buyer is bearish and pays premium for right to sell the asset at a set price.
5. Short put - writer is bullish and collects premium but has obligation to buy the asset if exercised.
It provides details on the risk and reward
This document provides an overview of commodity derivatives, including definitions of commodities, derivatives, and commodity derivatives. It explains that commodity derivatives allow farmers and businesses to hedge risks from fluctuating commodity prices by entering future or option contracts to lock in sale prices. Examples are provided of a farmer using futures to guarantee the price received for a future wheat crop and options to guarantee a minimum selling price. The role of commodity derivatives in price risk management is discussed.
The document discusses commodity hedging, which involves taking an opposite position in the futures market to reduce risk from volatile commodity prices. It provides an example of a wheat farmer who sells wheat futures at current prices before harvest to protect against falling prices. If prices do decline, the loss from selling the physical crop is offset by gains in the futures market. The document also gives a detailed example of a corn farmer who hedges by selling corn futures at a higher price before prices drop, allowing him to offset losses and effectively secure a higher selling price than if he had not hedged.
The document discusses the derivative market in India and risk management in banks. It defines derivatives and their various types like futures, options, and swaps. It explains how derivatives help banks manage risks like credit risk, interest rate risk, and liquidity risk. The history of derivatives trading in India is also summarized dating back to 1875. Key players in the market like hedgers, speculators, and arbitrageurs are identified along with their roles.
This document provides an introduction to options, including the different types (calls and puts), how they work, key terminology, and factors that influence pricing. An option gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price on or before expiration. The buyer pays a premium to the seller for this right. Key terms discussed include strike price, expiration date, and long/short positions. Factors like time to expiration, volatility, and interest rates impact an option's price. The Black-Scholes model is commonly used to price options based on these variables.
A hedge is an investment position intended to offset potential losses/gains that
may be incurred by a companion investment. In simple language, a hedge is
used to reduce any substantial losses/gains suffered by an individual or an
organization.
A hedge can be constructed from many types of financial instruments, including
stocks, exchange-traded funds, insurance, forward contracts, swaps, options,
many types of over-the-counter and derivative products, and futures contracts.
Public futures markets were established in the 19th century[1] to allow
transparent, standardized, and efficient hedging of agricultural commodity
prices; they have since expanded to include futures contracts for hedging the
values of energy, precious metals, foreign currency, and interest rate
fluctuations.
This document provides an overview of futures markets and contracts. Key points include:
- Futures contracts are standardized agreements to buy or sell an asset at a predetermined price on a future date. This allows hedging of price risk.
- Margin deposits are required as security and daily gains/losses are settled, allowing high leverage from low margins.
- Speculators take on risk from hedgers for potential profit from price movements. Hedgers use futures to lock in prices and eliminate risk.
- Examples demonstrate how farmers can hedge crop prices and processors can lock in input costs using long and short futures positions.
Structured financial products are created through the securitization of assets like mortgages and other loans. Mortgages are pooled together and interests in the cash flows from the pool are sold to investors in the form of mortgage-backed securities. Securitization allows originators to convert illiquid mortgages into tradable securities, replenish funds for further lending, and remove assets from their balance sheets. Common types of mortgage-backed securities include mortgage passthrough securities and collateralized mortgage obligations, which divide the cash flows from mortgage pools into different classes or tranches.
Speculation refers to buying and selling securities with the hope of profiting from price changes. A speculator buys securities expecting the price to rise, and then sells at a higher price to make a profit.
The terms "bull" and "bear" market come from the way each animal attacks - bulls thrust their horns up and bears swipe down, similar to stock price movements. Bulls buy anticipating rising prices in a bullish market. Bears sell anticipating falling prices in a bearish market.
A stag speculates by subscribing to new stock issues with the intent to quickly sell for a profit. A lame duck bear struggles to fulfill obligations when unable to obtain securities to sell as agreed
Commodity markets allow for the trading of raw materials and agricultural products. Commodities can be classified into categories like precious metals, agricultural products, energy, and petrochemicals. While some commodities like gold and oil are traded on exchanges, others like fresh flowers and eggs currently have no formal markets. Commodity markets provide an alternative asset class that is not correlated to stocks and bonds. Trading occurs through physical spot markets, forward contracts between private parties, and standardized futures contracts on regulated exchanges. Key participants include hedgers who manage risk and speculators who seek profits. Regulators oversee commodity markets to ensure transparency, fairness, and financial stability.
This document discusses key drivers and fundamentals of oil markets. It explains that oil prices are determined by the balance of supply and demand, and impacted by factors like economic growth, weather, geopolitics, speculation and infrastructure developments. It also outlines different participants in energy markets like producers, refiners, consumers and traders. Finally, it introduces common trading terminology around positions, spot/forward prices, liquidity and different trading strategies.
Oil trading allows individuals to profit from both rising and falling oil prices using leverage, which allows traders to control large positions with only a small deposit. While oil trading carries risks, traders can limit losses by using automatic stop losses and profit limits. To successfully trade oil, one needs a basic understanding of the oil market, including the different types of crude oil and how futures prices relate to physical delivery.
The document discusses various commodity derivatives markets and exchanges around the world. It provides details on the National Commodity and Derivatives Exchange of India (NCDEX) and Multi Commodity Exchange of India (MCX), including the commodities traded and clearing/settlement processes. It also summarizes information on the Tokyo Commodity Exchange (TOCOM) and contracts traded there such as gold and rubber. Finally, it outlines the Dalian Commodities Exchange in China and types of contracts traded including corn, soybeans, and crude soybean oil.
Asset allocation refers to how an investor distributes their funds across major asset classes like stocks, bonds, real estate, and cash. The document discusses three main asset allocation strategies: strategic asset allocation involves maintaining a long-term target allocation; tactical asset allocation aims to exploit short-term market changes; and insured asset allocation adjusts based on an investor's risk tolerance which may change with gains or losses. Successful asset allocation requires defining goals, assessing risk tolerance, creating a target portfolio, and periodic review/rebalancing.
A derivative is a financial instrument whose value is derived from the value of another asset, known as the underlying. There are three main types of traders in the derivatives market: hedgers who use derivatives to reduce risk, speculators who trade for profits, and arbitrageurs who take advantage of price discrepancies across markets. Derivatives can be traded over-the-counter (OTC) or on an exchange, and provide various economic benefits such as risk reduction and enhanced market liquidity.
This document provides an overview of various bullish, neutral, and bearish options trading strategies. It begins with a table of contents listing 27 bullish strategies, 25 neutral strategies, and 9 bearish strategies. It then provides a brief introduction to options, defining call options, put options, and describing option duration and moneyness. The document proceeds to explain 15 specific strategies in more detail, including long call, synthetic long call, short put, covered call, long combo, and others. Each strategy section defines the strategy, risks, rewards, construction, and provides an example to illustrate how it works.
The document discusses the efficient market hypothesis and random walk theory of stock prices. Some key points:
- Random walk theory states that stock price movements cannot be predicted from past prices and follow a random pattern. This implies markets are efficient.
- The efficient market hypothesis suggests that stock prices instantly reflect all available public information, making it impossible for investors to earn above-average returns.
- Empirical evidence provides mixed support for these theories. Studies of event periods find prices adjust rapidly to new information, but other anomalies like the size effect have been found, contradicting full market efficiency.
The document provides information on investment analysis, including definitions, methods, and concepts. It discusses two main types of analysis: fundamental analysis and technical analysis. Fundamental analysis examines basic company data like earnings, sales, and financial statements to determine a stock's intrinsic value. Technical analysis uses historical market data like prices and trading volumes to identify patterns that can predict future price movements. The document also covers the efficient market hypothesis, which proposes that stock prices reflect all publicly available information.
The document provides an overview of the Black-Scholes option pricing model (BSOPM). It describes the key assumptions of the BSOPM, including that the underlying stock pays no dividends, markets are efficient, and prices are lognormally distributed. It also outlines how the BSOPM can be used to calculate theoretical option prices from historical data on the stock price, strike price, time to expiration, interest rate, and volatility. The document discusses implied volatility and how it differs from historical volatility, as well as limitations of the BSOPM.
This document discusses various options trading strategies, including:
1. Long call - buyer is bullish on the underlying asset and pays a premium for the right to buy it at a set price.
2. Short call - writer is bearish and collects premium but has obligation to sell the asset if exercised.
3. Covered call - involves buying the asset and writing a call to generate income but limits upside.
4. Long put - buyer is bearish and pays premium for right to sell the asset at a set price.
5. Short put - writer is bullish and collects premium but has obligation to buy the asset if exercised.
It provides details on the risk and reward
This document provides an overview of commodity derivatives, including definitions of commodities, derivatives, and commodity derivatives. It explains that commodity derivatives allow farmers and businesses to hedge risks from fluctuating commodity prices by entering future or option contracts to lock in sale prices. Examples are provided of a farmer using futures to guarantee the price received for a future wheat crop and options to guarantee a minimum selling price. The role of commodity derivatives in price risk management is discussed.
The document discusses commodity hedging, which involves taking an opposite position in the futures market to reduce risk from volatile commodity prices. It provides an example of a wheat farmer who sells wheat futures at current prices before harvest to protect against falling prices. If prices do decline, the loss from selling the physical crop is offset by gains in the futures market. The document also gives a detailed example of a corn farmer who hedges by selling corn futures at a higher price before prices drop, allowing him to offset losses and effectively secure a higher selling price than if he had not hedged.
The document discusses the derivative market in India and risk management in banks. It defines derivatives and their various types like futures, options, and swaps. It explains how derivatives help banks manage risks like credit risk, interest rate risk, and liquidity risk. The history of derivatives trading in India is also summarized dating back to 1875. Key players in the market like hedgers, speculators, and arbitrageurs are identified along with their roles.
This document provides an introduction to options, including the different types (calls and puts), how they work, key terminology, and factors that influence pricing. An option gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price on or before expiration. The buyer pays a premium to the seller for this right. Key terms discussed include strike price, expiration date, and long/short positions. Factors like time to expiration, volatility, and interest rates impact an option's price. The Black-Scholes model is commonly used to price options based on these variables.
A hedge is an investment position intended to offset potential losses/gains that
may be incurred by a companion investment. In simple language, a hedge is
used to reduce any substantial losses/gains suffered by an individual or an
organization.
A hedge can be constructed from many types of financial instruments, including
stocks, exchange-traded funds, insurance, forward contracts, swaps, options,
many types of over-the-counter and derivative products, and futures contracts.
Public futures markets were established in the 19th century[1] to allow
transparent, standardized, and efficient hedging of agricultural commodity
prices; they have since expanded to include futures contracts for hedging the
values of energy, precious metals, foreign currency, and interest rate
fluctuations.
This document provides an overview of futures markets and contracts. Key points include:
- Futures contracts are standardized agreements to buy or sell an asset at a predetermined price on a future date. This allows hedging of price risk.
- Margin deposits are required as security and daily gains/losses are settled, allowing high leverage from low margins.
- Speculators take on risk from hedgers for potential profit from price movements. Hedgers use futures to lock in prices and eliminate risk.
- Examples demonstrate how farmers can hedge crop prices and processors can lock in input costs using long and short futures positions.
Structured financial products are created through the securitization of assets like mortgages and other loans. Mortgages are pooled together and interests in the cash flows from the pool are sold to investors in the form of mortgage-backed securities. Securitization allows originators to convert illiquid mortgages into tradable securities, replenish funds for further lending, and remove assets from their balance sheets. Common types of mortgage-backed securities include mortgage passthrough securities and collateralized mortgage obligations, which divide the cash flows from mortgage pools into different classes or tranches.
Speculation refers to buying and selling securities with the hope of profiting from price changes. A speculator buys securities expecting the price to rise, and then sells at a higher price to make a profit.
The terms "bull" and "bear" market come from the way each animal attacks - bulls thrust their horns up and bears swipe down, similar to stock price movements. Bulls buy anticipating rising prices in a bullish market. Bears sell anticipating falling prices in a bearish market.
A stag speculates by subscribing to new stock issues with the intent to quickly sell for a profit. A lame duck bear struggles to fulfill obligations when unable to obtain securities to sell as agreed
Commodity markets allow for the trading of raw materials and agricultural products. Commodities can be classified into categories like precious metals, agricultural products, energy, and petrochemicals. While some commodities like gold and oil are traded on exchanges, others like fresh flowers and eggs currently have no formal markets. Commodity markets provide an alternative asset class that is not correlated to stocks and bonds. Trading occurs through physical spot markets, forward contracts between private parties, and standardized futures contracts on regulated exchanges. Key participants include hedgers who manage risk and speculators who seek profits. Regulators oversee commodity markets to ensure transparency, fairness, and financial stability.
This document discusses key drivers and fundamentals of oil markets. It explains that oil prices are determined by the balance of supply and demand, and impacted by factors like economic growth, weather, geopolitics, speculation and infrastructure developments. It also outlines different participants in energy markets like producers, refiners, consumers and traders. Finally, it introduces common trading terminology around positions, spot/forward prices, liquidity and different trading strategies.
Oil trading allows individuals to profit from both rising and falling oil prices using leverage, which allows traders to control large positions with only a small deposit. While oil trading carries risks, traders can limit losses by using automatic stop losses and profit limits. To successfully trade oil, one needs a basic understanding of the oil market, including the different types of crude oil and how futures prices relate to physical delivery.
Crude oil is a naturally occurring hydrocarbon found in rock formations underground. It provides about 37% of the world's energy after fueling only 4% at the start of the 20th century. Crude oil varies in composition but contains mainly carbon and hydrogen, and is classified by its geographic origin, API gravity measuring density, and sulfur content, with sweet crude containing less sulfur being more valuable. Fundamental factors like supply, demand, economic conditions, and politics affect crude oil prices in addition to technical indicators used in futures markets to hedge price risk.
Oil 101 - A Free Introduction to Oil and Gas
Introduction to Supply, Trading, Transportation
This Supply, Trading, and Transportation (S&T) overview includes discussions on What is S&T, what are some of the major risks associated with trading, and some historical perspective on the evolution of S&T.
The complete S&T Module includes lessons on crude oil and products supply fundamentals, derivative contracts and exchanges, as well as key business drivers in physical trading and financial hedging. Natural gas trading is beyond our scope though it has a similar commercial function, closely tied to the utility and power consumer market.
What is Supply and Trading?
To help answer that question, let’s look briefly at how Chevron defines S&T on their website.
“Chevron Supply and Trading (S&T) provides a critical link between the market and Chevron's upstream, downstream and chemicals companies. S&T provides commercial support to Chevron's crude oil and natural gas production operations as well as to the company's refining and marketing network.”
- John D. Rockefeller founded Standard Oil in 1870 and by 1877 it controlled over 90% of the American oil refining industry. The invention of the combustion engine in 1895 drove increased oil demand and exploration.
- Major oil discoveries were made in the 1930s-40s in Saudi Arabia and Kuwait, shifting oil production away from the US. This started America's growing reliance on foreign oil. OPEC was formed in 1960 to give oil exporting countries more leverage.
- Significant events and oil price fluctuations followed, including the 1973 Arab oil embargo against the US and price spikes in the late 1970s and 2008. The BP Gulf of Mexico oil spill in 2010 was the largest and most catastrophic oil spill in history
Crude oil is a naturally occurring hydrocarbon found in rock formations underground. It is a dark, sticky liquid composed mainly of carbon and hydrogen. Crude oil is the world's most actively traded commodity and is refined into fuels like gasoline and diesel. The first commercial oil wells were drilled in the 1850s in Romania and India, and global crude oil consumption has exceeded 875 billion barrels to date. Crude oil futures are traded on exchanges like NYMEX and MCX, with key factors influencing prices including supply, demand, geopolitics, and weather conditions.
Oil 101 - Introduction to Petroleum Product MarketingEKT Interactive
Oil 101 - A Free Introduction to Oil and Gas
Introduction to Marketing - Retail and Wholesale
This petroleum product marketing overview includes discussions on What is Marketing, the structure and key functions of oil company marketing departments, and some historical perspective on how demand for transportation fuels, including service stations came, to dominate US landscape.
The complete Petroleum Product Marketing Module includes lessons on marketing fundamentals, retail vs wholesale marketing, and key business drivers and processes in petroleum product marketing.
What is Petroleum Product Marketing?
As we stated earlier, Marketing is the final step in the ‘Microbes to Markets’ chain that delivers useful petroleum products to end-user customers. The main business drivers of this segment are volume, market share and margin.
Worldwide, transportation fuels including gasoline, diesel, jet fuel and marine fuel oil account the largest percentage of global demand, and it is the fastest growing portion of refinery products.
In the United States, passenger cars still consume more petroleum products than any other sector. Today, the US accounts for about 44% of the world’s gasoline consumption, and transportation fuels are 65% of the US demand.
Since the US has one of the most competitive retail markets in the world, it has been a leading indicator in development of new service station formats. Many of these retail formats are adopted around the world – with some customization to accommodate local legislation and consumer preferences.
declining crude oil pricing:causes and global impactSatyam Mishra
The document discusses the recent decline in global crude oil prices, providing an overview of key causes and impacts. It notes that falling oil prices benefit oil importing countries but hurt exporters. Technological advances in extraction led to increased supply while demand weakened, contributing to the price drop. While lower prices aid consumers, they reduce revenues for exporters like Russia, Saudi Arabia, Venezuela and Iran.
The document provides an overview of trading oil and energy derivatives presented by Troy Lavin. It discusses the background and history of crude oil and futures markets. It describes different types of oil, how the futures market works, and typical market participants. It also outlines Lavin's approach to trading, including focusing on patterns and fundamentals, and provides an outlook for 2008 with concerns around supply and demand issues.
Oil prices are falling due to increased global supply outpacing demand, as well as increased production from countries like the US, Libya, and OPEC members refusing to cut production. Lower oil prices benefit economies that are net oil importers, like the US, India, and parts of Europe, but hurt exporters like Russia, Iran, and Venezuela. In India, falling prices reduce subsidy costs for the government, but also lower inflation and transportation costs, benefitting consumers.
One way to represent the economics of a refinery is to calculate its Refinery Gross Margin. GRM is the difference between crude oil price and total value of petroleum products produced by the refinery.
the difference in dollars per barrel between its product revenue (sum of barrels of each product multiplied by the price of each product) and the cost of raw materials (primarily crude, but also purchased additives like butane and ethanol). For example, if a refinery receives $80 from the sale of the products refined from a barrel of crude oil that costs $70/bbl, then the Refinery Gross Margin is $10/bbl. The Net or Cash Margin is equal to the gross margin minus the operating costs (excluding income taxes, depreciation and financial charges). Continuing the example, if a refinery experiences operating costs of $2 per barrel, then the Net Margin is $8/bbl.
Social Penetration Theory proposes that closeness in relationships develops gradually through reciprocal self-disclosure from more superficial to intimate levels of sharing. It views personality as layered like an onion, with more public aspects on the outside and private parts at the core. People aim to maximize the benefits of intimacy while minimizing vulnerability by carefully regulating how much they disclose based on expected rewards, costs, and available alternative relationships. However, the theory has been criticized for oversimplifying disclosure dynamics and overlooking gender and cultural factors.
Brief details of oil refining,oil products and pricing #oil #refining. It is a part of Oil Management. Interested people can gather knowledge from this PPT
Usos y valoración que hacen las mujeres profesionales de la banca española, y preferencias
de las mujeres profesionales sobre productos financieros: planes de ahorro e inversión, hipotecas y préstamos, etc.
This document provides an overview of factors impacting the global crude oil market. It includes sections on global crude oil consumption trends, major consuming nations like the US and China, OPEC production and investments, nations subsidizing oil, different types of crude oil, and technological innovations. Individual country analyses are given for countries like the US, Brazil, Russia, India, China, Libya, Iraq, Venezuela and Canada. Major US oil companies like Anadarko, Apache, Chevron, ConocoPhillips are also discussed.
This document provides an overview of a report analyzing techniques to manage crude oil price risk. It introduces factors that affect crude oil prices and their correlation to price fluctuations. It also analyzes financial instruments like options, futures, and derivatives that can be used by oil investors and producers. The report concludes various hedging techniques can help mitigate risk and maximize profits, and it recommends investors utilize different financial tools and closely follow market fundamentals to estimate prices and profit from changes.
A commodity is generally considered a standardized, homogeneous good that can be processed and resold. However, in reality commodities often vary widely in quality and are difficult to define and standardize. Creating measurement and quality standards is challenging but necessary to facilitate trading. Commodity exchanges have played a key role in addressing these challenges to establish liquid commodity markets.
Dokumen tersebut memberikan penjelasan singkat tentang analisis teknikal berdasarkan pola harga masa lalu untuk memprediksi arah harga di masa depan, jenis-jenis chart seperti line chart, bar chart dan candlestick chart, berbagai pola candlestick seperti double top, double bottom, head and shoulders, serta faktor-faktor yang mempengaruhi pergerakan harga minyak mentah seperti penguatan dolar AS, kelebihan pasokan minyak, dan rencana pemang
Oil prices falling and Their Impact on World and Indian EconomyRishabh Hurkat
The presentations is focused on Reason Behind the Fall in Global Crude Oil Prices.
It also inculcates various Charts and Data which are Up-to-date.
The Basic Reason is to understand the Effect on Global and Indian Economy.
This document provides an overview of countertrading, which involves exchanging goods or services for other goods and services rather than money. It discusses the history of countertrading from pre-World War II to the post-Cold War era. It also defines different types of countertrading such as commercial countertrade including barter and counterpurchase, and industrial countertrade including buybacks and offsets. The document concludes by mentioning examples of countertrading deals and predicting future growth in countertrading through online platforms and proactive corporate strategies.
Presentation on fuel and fx hedging for airlinesArshdeep Jindal
This presentation shows how important it is to have a comprehensive and targeted approach to hedging across asset classes. An isolationist approach where jet and fx are hedged separately could lead to losses to companies.
1. The document discusses several strategies for entering foreign markets, including exporting, piggybacking, countertrade, licensing, joint ventures, ownership, and export processing zones.
2. Countertrade involves indirect exporting where goods or services are exchanged instead of currency due to currency or trade barriers. It can take forms like barter, counterpurchase, compensation, and switch trading.
3. Licensing, joint ventures, and full foreign ownership represent increasing levels of commitment and control in foreign markets, with tradeoffs around costs, risks, and benefits.
This document provides an introduction and table of contents to a project report on exotic options and their products and applications. It discusses forward contracts and vanilla options such as calls and puts in chapter 2. Chapter 3 covers exotic options including lookback options, compound options, binary options, barrier options, and mountain range options like Atlas and Himalayan options. The document aims to explain how these derivatives work and their benefits and drawbacks for investors seeking to hedge risks, speculate, or arbitrage pricing inefficiencies.
The Arab oil embargo of 1973, and the subsequent nationalization o.docxmehek4
The Arab oil embargo of 1973, and the subsequent nationalization of significant reserves previously controlled by a handful of large, private companies, ushered in a new era of price instability.
To help the industry manage volatility, in 1978 the New York Mercantile Exchange (NYMEX) launched a heating oil futures contract, followed by a crude oil futures contract in 1983.
Today, the NYMEX crude contract is one of the most actively traded physical futures contracts in the world. Every day billions of dollars of energy products, metals and other commodities are bought and sold on the floor of the NYMEX.
Oil companies, oil traders and speculators hedge their activities with energy derivatives. This is the term used for financial contract instruments (also often called paper) that derive their value from the underlying commodity (most often crude oil, natural gas or refined products).
This lesson presents an overview of the basic building blocks of the derivatives most applicable to crude oil and refined products, including:
· Futures contracts: Standardized agreements, traded on an exchange or electronic forum, which provide for the sale or purchase of an asset on a specified date in the future
· Forwards: A contract usually negotiated between two oil and gas companies or traders with similar interests. They are not traded on an organized exchange
Spec tradingis the term used for those who take a position in financial derivatives with no offsetting position, either physical or financial. Spec traders have no intention of delivering or accepting the physical commodities.
Futures Contracts
Futures contracts are standardized agreements, traded on an exchange or electronic forum, which provide for the sale or purchase of an asset on a specified date in the future. The specified terms of the transaction are:
· Volume
· Price
· Delivery location
· Delivery period
· Settlement date
The purchaser of a futures contract has a long position (agreement to buy in the future), and
The seller of a futures contact has a short position (agreement to sell in the future).
Example of Application:
For example, in a futures agreement to deliver a specified quantity of crude oil (or gasoline or heating oil) at a specified place, on a specified future date, at a specified price -the seller agrees to make the delivery; the buyer agrees to take delivery. In reality, most futures traders usually don’t contemplate physical movement of crude.
· Suppose a crude oil trader plans to buy a cargo of crude oil at Ras Tanura, Saudi Arabia, and wants to sell it on the spot market in Japan . The problem for the trader is time – the 23-day transit period during which market events might destroy the economics of the deal and cause a heavy loss. The risk of financial loss can be eliminated if time can be taken out of the equation.
· A futures contract enables the crude to be sold at the price expected at receipt in Japan. It is set as soon delivery is taken in Ras Tanura inste ...
Chicago became a commercial center in the 1840s with railroads and telegraph connecting it to the East. The McCormick reaper led to higher wheat production in the Midwest. Farmers brought wheat to Chicago to sell to dealers who shipped it nationwide. In 1848, a central market opened where farmers and dealers could trade wheat for immediate cash delivery, which evolved into the first futures contracts where parties would agree to prices and amounts of wheat to exchange in the future. Speculators with no intention of delivery began trading the contracts, hoping to profit from price changes.
Derivatives markets have grown enormously in size and complexity over time. While derivatives can be useful for hedging risks, they also pose dangers to financial stability if misused or not properly regulated. The document discusses the history and evolution of derivatives markets. It defines different types of derivatives like forwards, futures, options, and swaps. It also outlines some public interest concerns around how derivatives may increase risk-taking and leverage in opaque over-the-counter markets. The document argues regulation is needed to address externalities like systemic risk and market manipulation. It recommends policies like registration, reporting, capital requirements and anti-fraud rules to help manage risks from derivatives.
This document provides definitions for over 100 terms related to energy hedging and risk management. It covers topics such as options types (e.g. calls, puts, Asian), trading concepts (e.g. arbitrage, contango, backwardation), commodities (e.g. crude oil, natural gas, electricity), locations for commodity delivery (e.g. Henry Hub, Cushing), and other industry terms (e.g. futures, swaps, volatility). The glossary is intended as a comprehensive reference for anyone involved in energy hedging and risk management.
The document discusses various risk mitigation strategies using derivatives for different groups involved in the natural gas market, including producers, gas processors, pipelines, distributors, marketers, and end users. It outlines strategies like hedging with futures contracts, options spreads like straddles and strangles, and basis trades. The key groups' price risks and how various derivative structures can address them are summarized.
This document discusses various hedging strategies using futures contracts. It defines anticipatory hedging as using futures to lock in future prices for assets that will be bought or sold. Examples are given such as an airline hedging future jet fuel purchases. The document also discusses hedging portfolios using stock index futures to reduce portfolio beta risk. Key formulas are provided for calculating optimal hedge ratios and determining the number of futures contracts needed to hedge a given exposure or change a portfolio's beta.
This document provides an overview of the history and regulations of the derivative markets. It discusses the origins of futures contracts in agriculture markets in the 19th century and the passage of the Commodity Exchange Act in 1936 to regulate speculation and promote transparency. It also describes the development of swaps contracts in the 1980s and the efforts of the Commodity Futures Trading Commission to determine whether and how they should be regulated. As swaps became increasingly standardized through the use of templates like the ISDA Master Agreement, regulators questioned whether they should be subject to the same exchange trading requirements as futures.
This chapter discusses hedging strategies using futures markets. It describes long and short hedges to lock in future prices when purchasing or selling an asset. The optimal hedge ratio balances minimizing risk from price changes in the hedged asset and futures contract. Basis risk, the risk of the asset and futures prices changing at different rates, also affects hedging strategies. The chapter provides formulas for calculating the optimal number of futures contracts to hedge an asset position or portfolio based on factors like value, beta, and contract specifications. Rolling hedges forward over time can hedge long-term exposures but creates liquidity risks if losses are realized before gains.
Forwards contracts are agreements between two parties to buy or sell an asset at a predetermined future date and price. The buyer agrees to purchase the asset at the future date while the seller agrees to deliver it. No money changes hands until delivery. Forwards are customized bilateral contracts that expose parties to counterparty risk. Futures contracts are standardized exchange-traded contracts to buy or sell an asset at a future date and preset price. Futures are marked to market daily where gains and losses are settled to maintain margin levels and limit counterparty risk.
The document provides an introduction to financial derivatives, including forwards, futures, options, and swaps. It defines each type of derivative and provides examples. Key points covered include:
- Derivatives derive their price from an underlying asset such as a commodity, currency, bond, or stock.
- Forwards and swaps are over-the-counter (OTC) contracts while futures and options trade on exchanges.
- Common uses of derivatives include hedging risk, speculation, and arbitrage.
- Margin requirements and daily settlement help manage counterparty risk in derivatives markets.
The document discusses commodities markets and futures/forwards contracts. There are two main categories of commodities - hard commodities like gold and oil that must be mined/extracted, and soft commodities like agricultural products. Most commodity trading involves futures contracts, which are exchange-traded forward contracts. A futures contract establishes the price today for buying/selling an asset in the future. While delivery occurs if a contract expires, most parties offset their positions before expiration to avoid delivery.
The document discusses commodities markets and futures/forwards contracts. There are two main categories of commodities - hard commodities like gold and oil that must be mined/extracted, and soft commodities like agricultural products. Most commodity trading involves futures contracts, which are exchange-traded forward contracts. A futures contract establishes the price today for buying or selling an asset in the future. While delivery occurs if a contract is held to expiration, most parties offset their positions before expiration to avoid delivery.
Commodities markets facilitate the trading of raw materials like oil, gold, and agricultural products. Commodities can be traded via futures contracts, which are agreements to buy or sell the commodity at a future date for a price determined today. There are two main types of commodities - hard commodities like metals that must be mined and soft commodities like agricultural products. Most commodity trading involves futures contracts, though physical trading and derivatives are also used. Exchanges worldwide facilitate trading in over 100 commodities.
The document discusses various investment opportunities for pension schemes arising from market conditions following the 2008 credit crunch, including gilt repurchase agreements (repo), gilt total return swaps, and collateral upgrade trades. It provides details on how gilt repo and total return swaps work, comparing them on factors like liquidity, maturity, transparency, and documentation. It also explains what a collateral upgrade trade entails, where a pension scheme loans gilts to a bank in return for less liquid collateral and a fee.
- Futures contracts call for delivery of an asset at a specified future date at an agreed price. The buyer takes a long position and commits to purchase the asset, while the seller takes a short position and commits to deliver the asset.
- Most futures contracts are settled financially rather than through physical delivery of the asset. They allow participants to hedge risk or speculate on price movements of underlying assets like commodities, financial instruments, and indexes.
- Basis risk arises from the uncertainty of the difference between the spot and futures price when closing out a hedge position. This can impact the effectiveness of hedges.
Similar to Understanding the concept Contango, backwardation, convenience yield in Financial Derivatives (20)
5 Tips for Creating Standard Financial ReportsEasyReports
Well-crafted financial reports serve as vital tools for decision-making and transparency within an organization. By following the undermentioned tips, you can create standardized financial reports that effectively communicate your company's financial health and performance to stakeholders.
Understanding how timely GST payments influence a lender's decision to approve loans, this topic explores the correlation between GST compliance and creditworthiness. It highlights how consistent GST payments can enhance a business's financial credibility, potentially leading to higher chances of loan approval.
In a tight labour market, job-seekers gain bargaining power and leverage it into greater job quality—at least, that’s the conventional wisdom.
Michael, LMIC Economist, presented findings that reveal a weakened relationship between labour market tightness and job quality indicators following the pandemic. Labour market tightness coincided with growth in real wages for only a portion of workers: those in low-wage jobs requiring little education. Several factors—including labour market composition, worker and employer behaviour, and labour market practices—have contributed to the absence of worker benefits. These will be investigated further in future work.
How Does CRISIL Evaluate Lenders in India for Credit RatingsShaheen Kumar
CRISIL evaluates lenders in India by analyzing financial performance, loan portfolio quality, risk management practices, capital adequacy, market position, and adherence to regulatory requirements. This comprehensive assessment ensures a thorough evaluation of creditworthiness and financial strength. Each criterion is meticulously examined to provide credible and reliable ratings.
2. Elemental Economics - Mineral demand.pdfNeal Brewster
After this second you should be able to: Explain the main determinants of demand for any mineral product, and their relative importance; recognise and explain how demand for any product is likely to change with economic activity; recognise and explain the roles of technology and relative prices in influencing demand; be able to explain the differences between the rates of growth of demand for different products.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
OJP data from firms like Vicinity Jobs have emerged as a complement to traditional sources of labour demand data, such as the Job Vacancy and Wages Survey (JVWS). Ibrahim Abuallail, PhD Candidate, University of Ottawa, presented research relating to bias in OJPs and a proposed approach to effectively adjust OJP data to complement existing official data (such as from the JVWS) and improve the measurement of labour demand.
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Economic Risk Factor Update: June 2024 [SlideShare]Commonwealth
May’s reports showed signs of continued economic growth, said Sam Millette, director, fixed income, in his latest Economic Risk Factor Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
A toxic combination of 15 years of low growth, and four decades of high inequality, has left Britain poorer and falling behind its peers. Productivity growth is weak and public investment is low, while wages today are no higher than they were before the financial crisis. Britain needs a new economic strategy to lift itself out of stagnation.
Scotland is in many ways a microcosm of this challenge. It has become a hub for creative industries, is home to several world-class universities and a thriving community of businesses – strengths that need to be harness and leveraged. But it also has high levels of deprivation, with homelessness reaching a record high and nearly half a million people living in very deep poverty last year. Scotland won’t be truly thriving unless it finds ways to ensure that all its inhabitants benefit from growth and investment. This is the central challenge facing policy makers both in Holyrood and Westminster.
What should a new national economic strategy for Scotland include? What would the pursuit of stronger economic growth mean for local, national and UK-wide policy makers? How will economic change affect the jobs we do, the places we live and the businesses we work for? And what are the prospects for cities like Glasgow, and nations like Scotland, in rising to these challenges?
2. INTRODUCTION
Backwardation, Contango and convenience yield explain the
relationship between the spot and futures prices in commodity
markets.
Backwardation Spot price > Futures price S(t) > F(t,T)
Contango Spot price < Futures price S(t) < F(t,T)
Basis (temporal basis) Futures price –spot price F(t,T) –S(t)
Backwardation discount, Contango premium
2
3. CONTANGO
Contango was a fee paid by a buyer to a seller when the buyer wished to
defer settlement of the trade they had agreed. This fee was similar in
character to the present meaning of Contango, i.e., future delivery
costing more than immediate delivery, and the charge representing cost
of carry to the holder.
Contango is a situation where the futures price (or forward price) of a
commodity is higher than the expected spot price.
In a Contango situation hedgers are "willing to pay more for a
commodity at some point in the future than the actual expected price of
the commodity.
This may be due to people's desire to pay a premium to have the
commodity in the future rather than paying the costs of storage and
carry costs of buying the commodity today.
3
4.
A contango is normal for a non-perishable commodity that has
a cost of carry.
The contango should not exceed the cost of carry, because
producers and consumers can compare the futures
contract price against the spot price plus storage, and choose
the better one.
The analysis of contango
The spread between futures and spot prices is related to the
cost of holding commodities over time (carrying charges):
F(t,T) –S(t) = CS(t,T)
-F(t,T) : Futures price at t for delivery at T
-S(t) : Spot price at t
-C s(t,T): Storage costs between t and T
4
5. BACKWARDATION
The opposite market condition to Contango is known as normal backwardation.
A market is "in backwardation" when the futures price is below the expected
future spot price for a particular commodity.
This is favourable for investors who have long positions since they want the
futures price to rise.
In broad terms, backwardation reflects the majority market view that spot prices
will move down, and Contango that they will move up.
Both situations allow speculators to earn a profit.
Normal backwardation, also sometimes called backwardation, is the market
5
condition wherein the price of a forward or futures contract is trading below the
expected spot price at contract maturity.
6.
If there is a near-term shortage, the price comparison breaks down and
Contango may be reduced or perhaps even reverse altogether into a state
called backwardation. In that state, near prices become higher than far (i.e.,
future) prices because consumers prefer to have the product sooner rather than
later and because there are few holders who can make an arbitrage profit by
selling the spot and buying back the future.
A market that is steeply Backwardated - i.e., one where there is a very steep
premium for material available for immediate delivery—often indicates a
perception of a current shortage in the underlying commodity.
By the same token, a market that is deeply in Contango may indicate a
perception of a current supply surplus in the commodity.
In 2005 and 2006 a perception of impending supply shortage allowed traders to
take advantages of the Contango in the crude oil market.
6
7. EXAMPLE
In 2005 and 2006 a perception of impending supply shortage
allowed traders to take advantages of the Contango in the crude
oil market. Traders simultaneously bought oil and sold futures
forward. This led to large numbers of tankers loaded with oil sitting
idle in ports acting as floating warehouses. It was estimated that
perhaps a $10–20 per barrel premium was added to spot price of oil
as a result of this.
The Oil Storage Contango was introduced on the market in early
1990 by the Swedish based oil storage company Scandinavian Tank
Storage AB and its founder Lars Jacobsson by using huge military
storage installations to bring down the "calculation" cost on storage
to create the Contango situation out of a "flat" market.
7
8. CONVENIENCE YIELD
Users of a Consumption asset may obtain a benefit from physically
holding the asset (as inventory) prior to T (maturity) which is not
obtained from holding the futures contract.
These benefits include the ability to profit from temporary shortages,
and the ability to keep a production process running.
The convenience yield is inversely related to inventory levels.
Sometimes, due to irregular market movements such as an inverted
market, the holding of an underlying good or security may become
more profitable than owning the contract or derivative instrument,
due to its relative scarcity versus high demand.
8
9.
Supply is an inelastic function of price
-High fixed costs of production (mineral resources)
-High fixed costs of transportation (gas facilities)
-Seasonality (agricultural products)
-Joint production processes (petroleum products)
Uncertainty
Supply may abruptly change:
-Weather conditions (agricultural products)
-Failure in production / transportation / transformation capacities
-New discovery (mineral resources)
-New plants
-Technological changes (energy products)
9