CRUDE OIL

INTRODUCTION
Crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons. Oil and gas account for about 60 per cent of the total world's primary energy consumption. Almost all industries including agriculture are dependent on oil in one way or other.

 Oil & lubricants, transportation, petrochemicals, pesticides and insecticides, paints, perfumes, etc. are largely and directly affected by the oil prices. Aviation gasoline, motor gasoline, naphtha, kerosene, jet fuel, distillate fuel oil, residual fuel oil, liquefied petroleum gas, lubricants, paraffin wax, petroleum coke, asphalt and other products are obtained from the processing of crude and other hydrocarbon compounds.

ENERGY CONSUMPTION

TYPES OF CRUDE OIL

Crude oil may be considered asLight- if it has low density heavy- if it has high density sweet -if it contains relatively little sulfur sour -if it contains substantial amounts of sulfur.

 The geographic location is important because it affects transportation costs to the refinery. Light crude oil is more desirable than heavy oil since it produces a higher yield of petrol sweet oil commands a higher price than sour oil because it has fewer environmental problems Each crude oil has unique molecular characteristics which are understood by the use of crude oil assay analysis in petroleum laboratories.

CRUDE OIL UNITS

1 US barrel = 42 US gallons. 1 US barrel = 158.98 litres. 1 tonne = 7.33 barrels . 1 short ton = 6.65 barrels . Note: barrels per tonne vary from origin to origin.

VARIETIES OF CRUDE OIL

Two things determining the market value of crude oil are-DENSITY and SULFUR content. Western texas intermediate ( WTI)- a very highquality, sweet, light oil physically traded in US. One of the largest traded commodities in the world. WTIs API gravity is between 37 and 42degrees with 0.24% sulphur content. NYMEX is the primary exchange facilitating trade in futures trade in light sweet crude oil.

CONTRACT SPECIFICATIONS OF CRUDE OIL Symbol Description No. of contracts a year Contract Duration CRUDE OIL CRUDE OIL MMMYY 12 3 months TRADING Trading period Trading sessions Trading unit Monday through Saturday Monday to Friday: 10.00 am to 11.30 pm Saturday: 10.00 am to 2.00 pm 100 barrels

Maximum order size

Tick size(minimum price movement) Daily price limits Price quote Initial margin Special margin

10,000 barrels
Re.1 4% Rs. per barrel, Ex- Mumbai (excluding all taxes, levies and other expenses) 5% In case of additional volatility, a special margin as deemed fit, will be imposed immediately on both the buy and sell side in respect of all outstanding position, which will remain in force for next 2 days, after which the special margin will be relaxed. For individual clients: 4,00,000 barrels. For a member collectively for all clients: 12,00,000 barrels or 15% of the open market position, whichever is higher. DELIVERY

Maximum allowable open position

Delivery unit

50,000 barrels with + / - 2% tolerance limit.

Delivery center(s)

Port installation at Mumbai / JNPT

QUALITY SPECIFICATIONS

Light Sweet Crude Oil confirming to the following quality specification is deliverable: Sulphur : 0.42% by weight or less API Gravity: Between 37-42 degrees All volumes are defined at 60 degrees Fahrenheit

BRENT CRUDE OIL

A grade from the north sea ,UK,Brent is a pricing benchmark for crude from Europe and Africa. With API 39 degrees and 0.4% or less sulphur content by weight. It is the second most traded variety in the world. Brent Crude Oil stands as a benchmark for Europe. Brent Crude futures are traded on the New York Mercantile Exchange under ticker symbol BZ. Futures contracts are delivered every month of the year.

CONTRACT SPECIFICATIONS OF BRENT CRUDE OIL

Symbol Description No. of contracts a year Contract Duration BRENT CRUDE OIL BRENT CRUDE MMMYY 12 3 months TRADING Trading period Trading sessions Trading unit Maximum order size Tick size(minimum price movement) Daily price limits Price quote Initial margin Special margin Monday through Saturday Monday to Friday: 10.00 am to 11.30 pm Saturday: 10.00 am to 2.00 pm 100 barrels 10,000 barrels Re.1 4% Rs. per barrel, Ex- Mumbai (excluding all taxes, levies and other expenses) 5% In case of additional volatility, a special margin as deemed fit, will be imposed immediately on both the buy and sell side in respect of all outstanding position, which will remain in force for next 2 days, after which the special margin will be relaxed. For individual clients: 1,50,000 barrels. For a member collectively for all clients: 6,00,000 barrels or 20% of the open market position, whichever is higher. DELIVERY Delivery unit Delivery center(s) 50,000 barrels with + / - 2% tolerance limit. Port installation at Mumbai / JNPT QUALITY SPECIFICATIONS Brent Blend confirming to the following quality specification is deliverable: API Gravity: Between 38-39 degrees Sulphur : 0.4% by weight or less

Maximum allowable open position

MIDDLE EAST CRUDE OIL

Dubai-Oman, used as benchmark for Middle East sour and heavy crude oil flowing to the AsiaPacific region. It has a gravity of 31 API and a sulfur content of 2% weight. It is a variety with a very large market in the gulf region. Indian refineries use crude benchmarked against middle east sour crude oil. TOCOM is prominent futures trading platform to trade in this grade.

CONTRACT SPECIFICATIONS OF MIDDLE EAST SOUR CRUDE OIL

Symbol Description No. of contracts a year Contract Duration ME CRUDE ME CRUDE MMMYY 12 3 months TRADING Trading period Trading sessions Trading unit Maximum order size Tick size(minimum price movement) Daily price limits Price quote Monday through Saturday Monday to Friday: 10.00 am to 11.30 pm Saturday: 10.00 am to 2.00 pm 100 barrels 10,000 barrels 50 Paisa 4% Rs. per barrel, Ex- Mumbai (excluding all taxes, levies and other expenses)

Initial margin Special margin

5% In case of additional volatility, a special margin as deemed fit, will be imposed immediately on both the buy and sell side in respect of all outstanding position, which will remain in force for next 2 days, after which the special margin will be relaxed. For individual clients: 1,00,000 barrels; For a member collectively for all clients: 25% of the open market position.

Maximum allowable open position

DELIVERY Delivery unit Delivery center(s) 50,000 barrels with + / - 2% tolerance limit. Port installation at Mumbai / JNPT QUALITY SPECIFICATIONS Middle east south sour crude oil either of Dubai or Oman origin with the following specification: Sulphur : 2.05% by weight or less API Gravity: Between 31-37%

OPEC
'Organization of Petroleum Exporting Countrieswas founded in 1960 in baghdad. It is an organization of eleven developing countries that are heavily dependent on oil revenues as their main source of income. The current Members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

 OPEC controls almost 40 percent of the world's crude oil. It accounts for about 75 per cent of the world's proven oil reserves. Its exports represent 55 per cent of the oil traded internationally. The OPEC has identified China & India as their main buyers of oil in Asia for several years to come.

CAUSES OF HIGH CRUDE OIL PRICES

Shortage of oil supplies. Balance of demand and supply in short time. Rate of investment in the longer term. If traders in the oil market believe there will be a shortage of oil supplies, they may raise prices before a shortage occurs. War. Natural disasters.

CAUSES OF LOW CRUDE OIL PRICES.

Imbalance between supply and demand. If oil production rises faster than demand. If the oil industry is unprofitable and discourages investors.

INDIAN SCENARIO
India ranks among the top 10 largest oilconsuming countries. Oil accounts for about 30 per cent of India's total energy consumption. The country's total oil consumption is about 2.2 million barrels per day. India imports about 70 per cent of its total oil consumption and it makes no exports. India faces a large supply deficit, as domestic oil production is unlikely to keep pace with demand. India's rough production was only 0.8 million barrels per day.

 The oil reserves of the country (about 5.4 billion barrels) are located primarily in Mumbai High, Upper Assam, Cambay, KrishnaGodavari and Cauvery basins. India had a total of 2.1 million barrels per day in refining capacity. Government has permitted foreign participation in oil exploration, an activity restricted earlier to state owned entities. IOCL is the largest refinery co. in india. RPLs jamnagar refinery is the largest in india and third largest in world.

MCX CRUDE OIL FUTURES

MCX was the first to start crude oil futures in india in 2005. Crude oil accounts for 25 per cent of the countrys import bill Volatility in crude oil prices affects the economic scenario quite adversely. High oil prices lead to inflation, increased input costs, reduced non-oil demand and lower investment in net oil importing countries

 Transporters and Airline companies can hedge the risk of rising Diesel/Petrol prices by taking a hedge in Crude Oil futures .
MCX is providing a platform for all the above categories of businesses and the common man. The Crude Oil contracts would be attractive for those who want to hedge for their business requirements as well as for those who want to seek cover against rising inflation.

RUPEE Vs CRUDE OIL PRICES.

As crude oil prices are designated in dollars, any weakening of the rupee makes oil more costly. The average price paid by India for imported crude oil fell to Rs 5,784 per barrel from Rs 5,825 per barrel a month ago. The dip was caused by a strengthening of the Indian rupee against the dollar.

GLOBAL SCENARIO
Oil accounts for 40 per cent of the world's total energy demand. The world consumes about 76 million bbl/day of oil. United States (20 million bbl/d), followed by China (6.9 million bbl/d) and Japan (5.4 million bbl/d) are the top oil consuming countries. Balance recoverable reserve was estimated at about 142.7 billion tones (in 2002), of which OPEC was 112 billion tones

World Demand Supply Balance

Top World Oil Producers, Exporters, Consumers and Importers, 2004 (in millions of barrels per day)
Sr. No Producers Total Oil Production
10.37

Exporters

Net Oil Exports

8.73

Consumers

Total Oil Consumptio n

20.5

Importers

Net Oil Imports

11.8

Saudi Arabia Russia USA Iran Mexico China Norway Canada Venezuela UAE Kuwait Nigeria UK

Saudi Arabia Russia Norway Iran Venezuela UAE Kuwait Nigeria Mexico Algeria Iraq Libya Kazakhstan

USA

USA

2 3 4 5 6 7 8 9 10 11 12 13

9.27 8.69 4.09 3.83 3.62 3.18 3.14 2.86 2.76 2.51 2.51 2.08

6.67 2.91 2.55 2.36 2.33 2.2 2.19 1.8 1.68 1.48 1.34 1.06

China Japan Germany Russia India Canada Brazil South Korea France Mexico

6.5 5.4 2.6 2.6 2.3 2.3 2.2 2.1 2.0 2.0

Japan China Germany South Korea France Italy Spain India Taiwan

5.3 2.9 2.5 2.1 2 1.7 1.6 1.5 1

DOLLAR Vs CRUDE OIL PRICES.

The dollar and oil tend to move in opposite directions. If dollars depreciate, then commodities priced in dollars will tend to rise and vice versa. During recession USD lost its value which led to increase in energy and commodity prices.

UNDERSTANDING CRUDE OIL CONTRACTS

Crude oil has its own ticker symbol, contract value and margin requirements. The margin changes based on market volatility and the current face value of the contract. For instance, if you choose to buy or sell a crude oil futures contract, you will see a ticker tape handle that looks like this: CL8K @105.52. Means : "Crude Oil (CL) 2008 (8) May (K) at $105.52/barrel (105.52). The value of a commodities contract is based on the current price of the market multiplied by the actual value of the contract itself. In this instance, the crude oil contract equals the equivalent of 1,000 barrels multiplied by our hypothetical price of $105.52, as in: $105.52 x 1,000 barrels = $105,520

LONG CRUDE OIL FUTURES TRADE.

If you are bullish on crude oil, you can profit from a rise in crude oil price by taking up a long position in the crude oil futures market. i.e by buying more future contracts.
Long Crude Oil Futures Strategy: Buy LOW, Sell HIGH BUY 1000 barrels of crude oil at USD 44.20/barrel SELL 1000 barrels of crude oil at USD 48.62/barrel Profit Investment (Initial Margin) Return on Investment USD 44,200 USD 48,620 USD 4,420 USD 12,825 34.46%

SHORTCRUDE OIL FUTURES TRADE.

If you are bearish on crude oil, you can profit from a fall in crude oil price by taking up a Short position in the crude oil futures market. i.e by selling future contracts.
Short Crude Oil Futures Strategy: Sell HIGH, Buy LOW SELL 1000 barrels of crude oil at USD 44.20/barrel USD 44,200

BUY 1000 barrels of crude oil at USD 39.78/barrel

Profit

USD 39,780
USD 4,420

Investment (Initial Margin)

Return on Investment

USD 12,825
34.46%

IS IT WORTH INVESTING?
MERITS
High Liquidity Internationally Easy Trading Concept. High Profitability Levels Round-The-Clock Trading Leverage

DEMERITS
High volatility
Sensitivity top several factors Threats from substitutes High risk.

CONCLUSION
Crude Oil is one of the most liquid and interesting commodities in the financial world. As Crude oil, trading carries high profit along with significant risk. Every individual trader can buy and sell these contracts with an investment as little as $1,000. The only thing you need is a lot of discipline and a strong stomach; oil trading is extremely volatile and youll be in for a bumpy ride!

BIBLIOGRAPHY
www.wtrg.com/daily/crudeoilprice.html www.futurescrude.com/ www.oilscenarios.info/oilbasics.htm www.theoptionsguide.com/crude-oil-futureslong-hedge.aspx www.crudeoiltrade.com/ www.mcxindia.com

PRESENTED BY:
AISHWARYA BALAKRISHNAN RIDDHI BAVISHI TWINKLE CHHADWA RIYA JAIN SHEFALI SAVLA MITU SOMANI JAGRUTI VORA 01 06 08 14 36 45 51
THANK YOU!!!