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[abc]Industry Glossary by OilPF

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TERM DEFINITION
3:2:1 Spread A common Crack Spread combination consisting of 3 short CL contract, 2 long RB contracts, and 1 long HO contract
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Arbitrage Buying and selling the same product in order to take advantage of price differences based on timing or location.
Backwardation A market in which higher prices prevail for nearer term contact months than for later contract months, indicating negative return for storage of the commodity. This is also called an inverted market.
Basis Risk Exposure based on differences between the price of the hedging instrument and that of the actual product being bought or sold. Typically these differences are due to location, timing, and small variations in the actual product specified.
Bearish The desire for, or indication of, a falling market.
Bear Market A falling market.
Blind Hedge The practice of establishing a hedge strategy including all market entry/exit points, etc. in advance, and executing the plan without regard for market conditions, cash values, etc.
Broker Customer's agent to enter into market positions by phone or online in exchange for commissions (not mark-ups). Discount Brokers execute the transactions only, whereas Full Service Brokers also offer trade recommendations, Technical and Fundamental Analysis, and money management.
Bullish The desire for, or indication of, a rising market.
Bull Market A rising market.
Call Option An agreement in which the buyer, or holder, has the right but not obligation to purchase a product in the future at a specified strike price, and the seller has the obligation to sell the product in the future at the specified strike price if asked to do so. Typically, a call option is only exercised by the holder if the market price is above the strike price near the option expiration date; otherwise it expires worthless.
Chicago Board of Trade (CBOT) The world's oldest futures and options exchange, dating back to 1848. Invented the Futures Contract in 1864. Merged with the Chicago Mercantile Exchange (CME) in 2007 to form CME Group.
Chicago Mercantile Exchange (CME) Major American exchange for financial derivatives and commodities, especially farm products. Spun off from the Chicago Board of Trade (CBOT) in 1919, then merged back with CBOT again in 2007 to form CME Group. Also known as "The Chicago Merc," or simply "The Merc."
CL Primary exchange symbol for West Texas Intermediate (WTI) Light, Sweet Crude Oil. Light Crude Oil contains a lower sulphur content than Sour Crude.
CL Futures WTI Crude Oil futures are traded based on the NYMEX in increments of 1,000 barrels (42,000 gallons) with a delivery point of Cushing Oklahoma. Crude Oil futures are listed for each month, up to nine years forward.
Closing Period The final moments of a trading session.
Closing Price See Settlement Price
Closing Range The price range for all trades of a commodity during the closing period.
CME Group New exchange holding company formed as a result of the merger of the Chicago Board of Trade (CBOT) and Chicago Mercantile Exchange (CME) in 2007. Acquired NYMEX in 2008, with NYMEX expected to be fully integrated by late 2009.
Commodity Hedging Acquiring commodity positions in the market to offset the risk of fluctuating prices on operational commitments or physical commodity holdings. Hedging gains or losses are typically treated as part of cost of goods sold.
Commodity Speculating Acquiring commodity positions in the market for the sole purpose of making a profit, with no offset against operational commitments or physical commodity holdings. Speculation gains or losses are treated as investment income.
Common Carrier A company authorized by the government to move petroleum products via pipeline, ship, or on-road vehicles for other companies.
Contango A market condition in which higher prices prevail for later contract months than for nearer term months, indicating a positive return for storage of the commodity. This is the opposite of Backwardation, and is typically considered the normal condition for most commodities.
Cooling Degree Days A quantitative reference to estimate the amount of energy required to cool homes during a summer season. Calculated each day as the average temperature (Tmax–Tmin) minus 65 degrees Fahrenheit.
Cracking A name for the petroleum refining process, in which larger, heavier molecules in crude oil are broken down into the lighter, less complex molecules found in gasoline, diesel, etc. The most common methods are combinations of catalytic and thermal cracking.
Crack Spread The purchase or sale of a crude oil contract along with a corresponding sale or purchase of a refined fuel contract, typically quoted in dollars per barrel (refined fuel price per gallon * 42 – crude price). The Gas Crack represents gasoline refining margins, while the Heat Crack represents heating oil and diesel refining margins.
EH Primary exchange symbol for Denatured Fuel Ethanol.
EH Futures Denatured Fuel Ethanol futures are traded on the CME in increments of 29,000 gallons (approximately 1 railcar) with a flexible delivery process due to the shipping certificate delivery instrument.
Energy Information Administration (EIA) A division of the Department of Energy (DOE) responsible for compiling petroleum and other energy industry data on a weekly basis. The weekly reports, typically released on Wednesday mornings at 10:30ET, often have a measurable effect on NYMEX and other petroleum industry prices.
Feedstock Any material used as input to a process that makes another material or finished product. For instance, crude oil is the primary feedstock used by refineries to make gasoline, diesel fuel and heating oil.
First Notice Day (FND or FFND) The first day that a clearinghouse can serve a notice of intent to deliver to a buyer who has held a long contract to expiration.
Forward Market Financial transactions made directly between two parties for the delivery of a certain amount of product at a specific future place and time. Also see Over-the-Counter (OTC).
Fundamental Analysis The use of general historical and current market conditions (economy, geopolitical events, etc.) to predict the upward or downward movement in the market.
Futures Contracts Commitments for the actual transfer of commodities in a particular future month. Futures have no up-front costs other than small transaction fees, but do have immediate and ongoing cash flow ramifications due to initial and mark-to-market margin requirements.
Futures Market Regulated, competitive trading in an anonymous auction with standardized contracts and financial performance guaranteed by the exchange. Large volumes of Energy Futures are traded on the New York Mercantile Exchange (NYMEX), as well as the Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (ICE).
Futures Positions See Futures Contracts
Futures Transactions The acquisition or liquidation of long (commitment to buy) or short (commitment to sell) futures contracts.
Gas Crack A Crack Spread composed of 1 short CL contract and 1 long RB contract. Commonly called RBCL, this combination is measured in $/barrel and is calculated as RB*42-CL because RB is priced in gallons and there are 42 gallons/barrel.
Good Til Canceled (GTC) Order A request to acquire or liquidate a futures contract or option only at a specified price or better, which remains in effect until either executed or canceled. Normally, orders expire if not executed by the end of the current trading session.
Heat Crack A Crack Spread composed of 1 short CL contract and 1 long HO contract. Commonly called HOCL, this combination is measured in $/barrel and is calculated as HO*42-CL because HO is priced in gallons and there are 42 gallons/barrel.
Heating Degree Days A quantitative reference to estimate the amount of energy required to heat homes during a winter season. Calculated each day as 65 degrees Fahrenheit minus the average temperature (Tmax–Tmin).
Hedging with Commodities See Commodity Hedging
HO Primary exchange symbol for Heating Oil.
HOCL See Heat Crack
HO Futures Heating Oil futures are traded on the NYMEX in increments of 1,000 barrels (42,000 gallons) with a delivery point of FOB New York Harbor. Heating Oil futures are listed for each month, three years forward.
Integrated Oil Company A vertically integrated petroleum company involved in everything from crude exploration and production to the refining, distribution and retail sales of refined petroleum products.
Intercontinental Exchange (ICE) Worldwide Internet-only exchange for commodities and financial derivatives, headquartered in Atlanta, with major presences in London and Singapore in addition to the U.S. market.
International Energy Agency (IEA) The International Energy Agency (IEA) is an autonomous organization that focuses on energy security, economic development, environmental awareness, and engagement worldwide to ensure reliable, affordable and clean energy for its member countries and beyond.
Last Trading Day (LTD or FLTD) The last day a futures contract may be traded. A holder of a contract at the end of this day must be prepared to either deliver or accept delivery of the underlying commodity.
Limit Order A request to acquire or liquidate a futures contract or option only at a specified price or better.
Long Position A market position that increases in value when the market goes up.
Margin Funds required by NYMEX and other exchanges to be on deposit in order to be a buyer or seller of a futures contract. Can cause significant cash flow ramifications when hedging long term, fixed price contracts.
Market It Touched (MIT) Order A request to trigger a market order if and when the market reaches a specified price, typically placed when the market is less favorable than the specified price. This differs from a limit order in that the specified price may not be met depending on what the market does after the price is reached.
Market Order A request to buy or sell a futures contract at the best available price at the time the order is placed.
MTBE Acronym for Methyl Tertiary Butyl Ether, a chemical compound (C5H12O) used in reformulated gasoline to oxygenate and increase the octane level. Its use has diminished in favor of RBOB-Ethanol based reformulated gasoline due to environmental and health concerns.
Naked Option The sale of a put or call option in which the underlying futures contract is not also owned to balance the obligation.
New York Mercantile Exchange (NYMEX) The world's largest commodities exchange for energy and precious metals.
NG Primary exchange symbol for Natural Gas.
NG Futures Natural Gas futures are traded on the NYMEX in increments of 10,000 million British thermal units with a delivery point of Henry Hub in Louisiana. Natural Gas futures are listed for each month, five years beyond the current year.
Open Interest Nymex-published figure reporting the number of currently outstanding positions (both long and short) in the market for a given futures contract or option.
Option An agreement in which the buyer, or holder, has the right but not obligation to either purchase or sell a product in the future at a specified strike price, and the seller has the obligation to sell or buy the product in the future at the specified strike price if asked to do so. See Call Option, Naked Option, Put Option, etc.
Over-the-Counter (OTC) Trading that takes place directly between parties rather than on a formal exchange. Because no exchange is involved to guarantee the transaction, the parties must consider each other's balance sheets when deciding whether or not to commit to the deal.
PADD Acronym for Petroleum Administration For Defense Districts, but commonly representing the five geographic areas for federal price controls and allocation of petroleum products..
Prompt Month The nearest month of a futures contract that is still trading.
Put Option An agreement in which the buyer, or holder, has the right but not obligation to sell a product in the future at a specified strike price, and the seller has the obligation to buy the product in the future at the specified strike price if asked to do so. Typically, a put option is only exercised by the holder if the market price is below the strike price near the option’s expiration date; otherwise it expires worthless.
RB Primary exchange symbol for Gasoline, based on the RBOB specification. Replaced HU, which was based on deliveries of the prior MTBE gasoline specification, in 2006.
RBCL See Gas Crack
RB Futures RB (gasoline) futures are traded on the NYMEX in increments of 1,000 barrels (42,000 gallons) with a delivery point of FOB New York Harbor. RBOB futures are listed for each month, three years forward.
RBOB Acronym for Reformulated Blendstock for Oxygenate Blending, which is mixed with ethanol to produce reformulated gasoline.
Selective Hedge The practice of modifying a hedge strategy over time based on current market conditions, cash values, etc.
Settlement Price The official final price of a trading session as determined by the settlement committee, typically determined by the weighted average of trades during the closing period.
Short Position A market position that increases in value when the market goes down.
Speculating with Commodities See Commodity Speculating
Spot Market High volume exchanges between oil companies for crude and refined petroleum products.
Stop Order A request to trigger a market order if and when the market reaches a specified price. This differs from a Market If Touched order in that it is typically placed when the market is more favorable than the specified price.
Technical Analysis The use of purely the historical and current value of a security to predict its upward or downward movement in the future, without regard to market conditions or issues.
Trade At Settlement (TAS) Order A request to buy or sell a futures contract at the to-be-determined settlement price of a trading session.
Trailing Stop Order (T-Stop) A Stop Order in which the stop price moves along with the market in the desired direction at a pre-determined distance behind, but not in the other direction if the market turns around.


Oil Protection Factor is the Energy Hedging Data Management & Analysis service of 9Ware, Inc.
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