28-08-2013, 03:49 PM
Derivative On Crude Oil
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Energy Derivative
An energy derivative is a derivative contract based on an underlying energy asset, such as natural gas, crude oil, electricity.
Energy derivatives include exchange-traded contracts such as futures and options, and over-the-counter derivatives such as forwards, swaps and options.
Major players in the energy derivative markets include major trading houses, oil companies, utilities, financial institutions.
Future contract
The basic building blocks for all Derivative contracts are the Futures and swaps contracts. For the energy markets these are traded in New York NYMEX, in Tokyo TOCOM and on-line through Intercontinental Exchange.
A future is a contract to deliver or receive oil
In the case of an oil future ,the price is agreed on the date the deal/agreement/bargain is struck together with volume, duration, and contract index.
Market Influencing Factors
Market Influencing Factors
OPEC output and supply.
Terrorism, Weather/storms, War and any other unforeseen geopolitical factors that causes supply disruptions.
1 US barrel = 42 US gallons.
1 US barrel = 158.98 litres.
1 tonne = 7.33 barrels .
1 short ton = 6.65 barrels .
World Crude Oil Prices
History and charts
The price for the futures contract at the date of delivery (contract expiry date) may be different.
At the expiry date, depending upon the contract specification the 'futures' owner may either deliver/receive a physical amount of oil , they may settle in cash against an expiration price set by the exchange, or they may close out the contract prior to expiry and pay or receive the difference in the two prices.
In futures markets we always trade with a formal exchange, every participant has the same counterpart.
Crude oil
Crude oil is the most widely used energy resource in the world:
Crude oil accounts for nearly 40% of the global energy demand and its consumption is estimated to be over 85 million barrels per day.
Crude oil has wide application and global appeal. When refined, it gives an array of automobile fuels, lubricants, asphalt and petrochemicals. Petrochemical end-products include plastic, detergent, chemical fertilizer, synthetic fibre and rubber.
Crude oil a wise investment
Crude oil is a versatile commodity and its by products are used as input for numerous industries.
Modern industrial as well as agricultural economy depends upon crude oil. This makes it a good investment in the long run.
Crude oil demand is on a rise in emerging nations like India and China and this trend will persist as economic activity rises further.
Crude oil market is in tight balance and with increasing demand in emerging markets and dwindling sources of new supplies, price may remain firm in the long term.
Crude oil prices in India
India is world's 4th largest crude oil consumer with consumption at 3.1 million barrels per day. India imports almost 70% of its total consumption.
Crude oil is the biggest component of India's import basket and its price affects overall economy.
Rapid economic development is expected to further increase its consumption.
Indian commodity market is growing and crude oil is one of the most traded commodities on domestic bourses.