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Oil Trading Glossary

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Actualize A move is actualized when support documentation (ticket) is received (pipeline ticket, inspector documentation for a Barge, etc.). The actualized amount represents that which will be invoiced. The difference between the actualized amount and the deal is an imbalance.

Actuals Physical cash commodities as opposed to futures commodities.

Allocation A limit placed on customers, typically unbranded wholesalers and exchange-supplied rack customers, which restricts the amount of product they can pull in any one-day or ten-day period. Allocations are used to manage inventories and credit risks.

American Style Option An option contract that may be exercised at any time prior to expiration. This differs from a “European options,” which may only be exercised on the expiration date. NYMEX options are “American.”

API American Petroleum Institute.

API Gravity. Gravity (weight per unit volume) of oils as measured by the API scale.

ARB, see Arbitrage

Arb Markets Those locations around the globe where the opportunity exists to purchase crude or products in one market for immediate resale in another in the hope of profiting from a price differential.

Arbitrage   The simultaneous purchase and sale of similar or identical commodities in two different markets.

Assign. To designate an option writer for fulfillment of his obligation to sell a futures contract (call option writer) or buy a futures contract (put option writer).

At-The-Market An order placed at the market is executed immediately at the best price available on the trading floor.

At the Money An option is at the money when the underlying futures price equals the strike price.

Average Price Options (Asian style options) Average price options or average rate options, are settled against the average of prices for an underlying commodity over a period of time.

Back Months Contracts that are further out in time are collectively referred top as the back months. See front months for comparison.

Backwardated Market Market situation in which futures prices are progressively lower in the distant delivery months. An “inverted market.”

Backwardation – market situation in which futures prices are lower in each succeeding month. Also known as an inverted market, The opposite of contango.

Baltic Exchange Operated in London, provides daily freight market rates as well as maintaining various shipping cost indexes.

Barge An oil-carrying vessel, either motorized or towed, employed to carry products in river or lakes. Barges are smaller than ocean-going tankers, usually ranging in size from 8,000 to 50,000 barrels. Barges can be self-propelled, towed, or pushed.

Barrel (BBL) A unit of volume measurement used for petroleum and its products. (42 gallons)

Barrel-for-barrel The term used for a US product exchange when a barrel owed by a company is repaid with another barrel and no cash changes hands.

Barrel Mile A term used in transportation of crude and/or products to indicate the distance traveled as well as the quantity moved.

Basis The differential that exists at any time between the futures price for a given commodity and the comparable cash or spot price for the commodity.

Basis Risk The risk that the differential between prices of the same commodity in different markets – e.g., differences in delivery location or delivery time – will affect the financial position of the oil company or trader.

Batch A measured amount of oil in a pipeline.

Batches Homogeneous quantities of petroleum shipped through a pipeline usually having a specified minimum acceptable size.

Batch Number A number assigned to a “batch of product traveling (or scheduled to travel) through a pipeline. In the case of non-pipeline transportation, the batch number will be the vehicle identifier.

Batching Sequence The order in which product shipments are sent through a pipeline.

Basic Sediment and Water (BS&W) Bottoms, sediments, and water that collect at the bottom of storage tanks.

Bear One who anticipates a price decline.

Bear Spread An option position comprised of long and short options of the same type, either calls or puts, destined to be profitable in a declining market. An option with a lower strike price is sold and one with a higher strike price is bought.

Bid A motion to buy a futures or option contract at a specified price.

Bilateral Transaction The majority of energy contracts executed in today’s marketplace.

Black Scholes Model The Black-Scholes model is a set of formulas used to assign prices to option contracts. The model is named after Fischer Black and Myron Scholes, who developed it in 1973.

BOL Bills Of Lading or a Manifest. The bill of lading is a document of title to a cargo and establishes the legal owner.

Book A term used for a summary of all the trades in a similar set of positions. For example, the crude book or the products book.

Book Transfers No physical product is involved. Used with term “booking out of a deal.” An example would be where ABC sells to Clark who sells to XYZ to sell to ABC. The actualized move amount would equal the deal amount.

BPCD Barrels Per Calendar Day (365 days) as the term is used in connection with the wholesale operations.

Break A sudden change in futures prices.

Breakout Tankage A storage facility consisting of one or more tanks used to accommodate petroleum between pipelines or between pipeline segments with different pumping rates.

Brent (Crude) The price marker crude of the light, sweet crude oil from the North Sea, named after one of the region’s largest fields with appx. 38° API and a sulfur content of 0.4%..

Brent Arbitrage The differential between the (WTI) crude oil futures contract and the North Sea Brent futures contract measured in the same time period. Commonly termed Arb

Broker The person who executes the buy-and-sell orders of a customer in return for a commission or fee.

Bulge  A rapid advance in futures prices.

Bulk Carrier A carrier engaged in transporting commodities such as petroleum that are not packaged, canned, drummed, or otherwise packed.

Bulk Network Used to define large movements of refined products by marine and pipeline.

Bulk Price The daily posted price paid for a tanker truck load of product at a refiner’s loading rack, i.e., 8,000 to 9,000 gallons. Based on spot prices with a premium added for smaller loads.

Bulk Terminal A non-consumer facility used for storage and/or marketing of petroleum products that has total storage capacity of 50,000 barrels or more or receives petroleum products by barge, tanker, or pipeline.

Bull One who anticipates a price increase.

Bull Spread An option position composed on both long and short options of the same type, either calls or puts, designed to be profitable in a rising market. An option with a lower strike price is bought and one with a higher strike price is sold.

Bunkering To fill a ship’s storage compartment with coal or oil.

Buy/Sells A contract with a customer specifies a sale and a purchase. These two deals are treated independently for billing purposes. Imbalances which exceed the provision imbalance are settled.

Calendar Spread An option strategy involving purchase and sales of two options contracts of the same type that have the same strike prices but different expiration dates. Also known as a horizontal spread.

Call Option An option which gives the buyer/holder the right to enter into a long futures position at a predetermined strike price, and obligates the seller/writer to enter into a short futures position at that designated price, should the option be exercised.

Cap A call option, giving the refiner a right to purchase crude oil at the specified strike price, regardless of how much the market price increases.

Capacity The maximum volume that a pipeline can move between two points during a given time period using existing equipment.   It depends on pipeline diameter; pipeline length; pumping equipment; intermediate locations; pipeline topography; and petroleum viscosity, temperature, and gravity.

Carrier Pipelines, barge, truck, tanker and railcar companies. Or an individual, partnership, or corporation engaged in the business of transporting goods.

Carrying Charge The total cost of storing a physical commodity over a period of time. Includes storage charges, insurance, interest, and opportunity costs.

Cash Commodity The actual, physical commodity.

Cash Market  The market for a cash commodity where the actual physical product is traded.

CFTC Commodity Futures Trading Commission. The federal regulatory body which oversees commodity futures trading activities, standards and practices.

CIF Cost, Insurance, Freight. Term refers to a sale in which the buyer agrees to pay a unit price that includes the free on board (FOB) value at the port of origin plus all costs of insurance and transportation.

Clean Product Motor gasoline, kerosene, jet fuel, and distillate fuel oil.

Clean Product Tanker Ships that move naphtha, jet fuels, kerosene and gasoline.

Clearport Allows for OTC-traded derivatives to be entered into the exchange’s clearing system with the NUMEX as the counterparty to both sides of the transaction.

Close-In Scheduling Vessel scheduling close to the load or discharge port. This task is often performed by a different scheduler than the one who scheduled the voyage. A close-in scheduler is responsible for ensuring best utilization of port facilities and minimum demurrage on vessels and barges.

CME Chicago Mercantile Exchange.

Collar A collar is the combination of a cap and a floor. See separate definitions.

Commission The fee charged by a futures broker for the execution of an order.

Commitment or Open Interest The number of contracts in existence at any time which have not as yet been satisfied by an offsetting sale or purchase, by actual contract delivery, or, in the case of options, by exercise.

Common Carrier Transportation line or system carrying persons or goods for compensation, impartially for all persons or shippers.

Common-Carrier Pipeline A pipeline with the authority and responsibility (state or federal) to provide public transportation for hire.

Contamination Mixing of small amounts of petroleum into a larger batch, adversely affecting the quality of the larger batch.

Contango Market  A market situation in which prices are progressively higher in the succeeding delivery months than in the nearest delivery month. The opposite of backwardation.

Contract The high-level definition of a purchase, sales, exchange, or buy/sell agreement. Specifies the customer, terms, time frame, letter of credit, trader, and special provision information.

Contract Carrier Any person, partnership, or corporation, not a common carrier, that transports passengers or property for compensation under individual contracts or agreements.

Convenience Similar to an evergreen contract, except it may not be placed on the books each month. The exchange is in place for the convenience of either party and is not always used.

Conversion A riskless arbitrage transaction involving a long future, a long put option, and a short call option. The put and call options have the same strike price and same expiration date.

Cost of Carry The cost of holding a physical commodity over a period of time. The main elements are an interest cost to fund inventory, storage and insurance.

Counterparty  The other party that participates in a financial transaction. Every transaction must have a counterparty in order for the transaction to go through. More specifically, every buyer of an physical or paper asset must be paired up with a seller that is willing to sell and vice versa.

Cover  To close out a short futures or option position.

Covered Writing The sale of an option covered by a position in the underlying futures contract. For example, short call and long future.

Crack Spread Equal and offsetting position(s) in crude oil on one side and refined products, particularly gasoline and heating oil on the other. The term comes from the predominant oil refinery process known as “cracking.”

Credit Risk The risk that a counterparty will not perform in accordance with the contract terms, either by failing to deliver the agreed upon commodity or to pay the agreed upon price.

Crude Oil A mixture of hydrocarbons that exists in a liquid phase in natural underground reservoirs and remains liquid at atmospheric pressure after passing through surface separating facilities.

Custody Taking possession of and responsibility for (but not title or ownership of) a petroleum shipment.

Cycle A sequence of pipeline movements. For example, gasoline-kerosene-jet fuel -No. 2 fuel oil-kerosene-gasoline which is repeated on a consistent basis; usually five, seven, or ten days in length.

Day’s Supply A simplified calculation of inventory level , calculated as available inventory divided by thecurrent daily demand.

Day Trade The purchase and sale of a futures or an option contract on the same day for speculative gain.

Deadweight Tons See DWT.

Deal A part of the contract. It is subordinate the contract and one or many can exist. This level specifies the product, pricing, location, differentials (if appropriate), and quantity information.
Deep Water Vessel activities involving ocean-going cargoes, with deep drafts, as opposed to close-in or coastal vessel activities.

Degree Days   A measure of how cold (or hot) the weather has been (relative to a stated base temperature) measured over a regular monitoring interval, usually weekly or monthly.

Delivery The satisfaction of a futures contract position through the tendering and receipt of the actual physical commodity.

Delivery Area The points specified in an exchange’s rules as to where delivery of the physical commodity can be made.

Delivery Month The month specified in a given futures contract for delivery of the actual physical spot or cash commodity.

Delivery Month The month in which delivery against a futures contract takes place.

Delivery Notice A notice presented through an exchange’s clearing house by a clearing member advising of the intention to deliver the actual commodity in satisfaction of a contract obligation.

Delivery Points Those locations designated by an exchange at which delivery may be made in fulfillment of contract terms.

Delta The amount by which an option premium changes relative to a change in the price of the underlying futures contract. Deltas are positive for bullish option positions and negative for bearish options positions. Delta is an instantaneous rate of change and varies by a factor “gamma” with respect to the underlying futures price.

Demand The withdrawal of stocks from the primary distribution system.

Destination (unloading point) – Place to which a shipment is consigned or delivered.

Derivatives  Financial agreements that are based on contracts (i.e., they are derived from contracts). Examples are cash put and call options and swaps (derived from wet barrel contracts) and exchange-traded options (derived from futures contracts).

Differentials An amount specified to compensate for unequal values of products to be received and delivered on an exchange. Could be due to product quality differences, location differences, or time.

Dirty Cargo Those petroleum products that leave significant amounts of residue in tanks. Generally applies to crude oil and residual fuel.

Dirty Product Tanker Ships that move diesel and fuel oils.

Dispatchers Pipeline personnel who control the system from a central location.

Double-hulled Tanker A ship with a two-meter wide space between the cargo tanks and the outer skin of the ship.

Downstream An industry term referring to commercial petroleum operations beyond the crude production phase, i.e., refining and marketing.

Draft The depth of a vessel below the waterline.

Dry Bulk Tanks Designed for transporting cement, flour, etc. and could, with modification, transport liquid commodities.

Dry-Docking A system designed to lift a vessel or barge out of water for repair or cleaning.

DWT (deadweight tons) – The carrying capacity of a ship in tons of 2,240 pounds; the difference between a ship’s displacement light and her displacement loaded.

EFP See Exchange For Physical.

End-User The ultimate consumer of petroleum products; most commonly refers to large commercial, industrial or utility consumers.

European Style Option An option which may be exercised only on its expiration date.

Evergreen An ongoing contract. It will automatically become a contract each month until an agreed cancellation (usually ninety days) occurs.

Exchange An agreement to trade two or more products without payment for the product. There may be differentials associated with the deal for the grade of the product, the location, or time.

Exchange For Physical (EFP) A deal will be made to sell x number of NYMEX shares (each worth 1000 BBLs of light sweet crude) for an equivalent number of physical BBLs. The pricing of the two may be different, as specified in the contract. Imbalances are important in this situation, since the futures trade will be an exact amount, and the physical volume will probably not be exact.
Exchange Member Firms trade for customers (or on their own behalf) on commodity exchanges, charging a commission for its service.

Exercise The right granted to the option’s holder to buy the underlying futures contract at the strike price, in the case of a call option, or sell the underlying futures contracts at the strike price, in the case of a put option.

Exercise Price The price at which an option may be exercised. Also called strike price.

Expiration Date The last day an option may be exercised.

Exposure Position See Position.

Extrinsic Value An option’s extrinsic value is the amount by which the premium exceeds its intrinsic value. Also known as time value.

Feeder Lines A pipeline delivering petroleum into a common carrier pipeline.

Fence An options position combining a long and short position, one put and one call (or vice versa) at two different strike prices.

FFA See Freight Forward Agreement

Firms  A wholesale contract, also known as a deal, which has a time frame (usually ten days) and a quantity as its constraints. The contract will specify the product, location, price, quantity, and time frame for a customer.

First Notice Day The first day on which delivery notices on futures transactions may be delivered and authorized to an exchange.

Fixed Storage Storage capacity that is held at a central location for eventual consumption by an end-user, such as jet fuel storage tanks at an airport.

Floor A put option, giving the producer a right to sell crude oil at the specified strike price, regardless of how much the market price decreases.

Floor A term for the activity room of the NYMEX or other exchanges that use open outcry instead of electronic trade placement

Floor Broker   An exchange member who executes orders for futures trades in the trading ring on the floor of a commodities exchange.

Floor Trader or Local An exchange member who executes orders for futures trades for his own account.

FOB Free On Board, meaning the seller is free of any obligations once the product is on board. The FOB point specifies the location where the ownership of product is transferred. This is important for tax.

Force Majeure A contract clause indemnifying the supplier in the event outside of their control which prevents performance under the agreed terms and conditions. Such circumstances can include hurricanes and earthquakes.

Forward Contract An agreement made today for a trade that will take place at some point in the future.

Forward Trading See Hedging.

Freight Forward Agreements (FFAs) The term for the Baltic Exchange instrument defining a also operates a market for marine freight futures.

Front Months   The first few months of a contract.

Full-Day Volume   Another term used for the daily average of a refined products movement.

Fundamental Analysis The study of pertinent supply-and-demand factors which influence the specific price behavior of commodities.

Fungible Products or crude oils of like characteristics which can be mixed without downgrading.

Fungible Interchangeable Products which can be commingled for purposes of shipment or storage.

Futures Standardized contract for the purchase or sale of a commodity which is traded for future delivery under the provisions of exchange regulations.

Futures Contract An 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.

Gain/Loss The difference between the load/receipt numbers and the discharge/delivery numbers will be the gain or loss. This may or may not end up as a cost of sale. For crude pipeline movements (and some product pipeline movements gain/losses are settled at the end of the month with the pipeline company.

Gas Crack Gas Crack is calculated by the difference in price between (RBOB – Crude), where RBOB is the term for Reformulated Gasoline Blend Stock for oxygenated gasoline.

Gathering System The network of small lines used to collect crude oil and gas liquids from individual production units or facilities.

Globex   The CME’s global electronic trading system. Primarily aimed at the after-hours market,

Gross Volume The metered quantity, uncorrected for the effects of temperature.

Gulf Intracoastal Waterway The navigable 1,800-mile waterway from Brownsville, Texas to St. Marks, Florida.

Heat Crack Heat Crack is calculated by the difference in price between (Heating Oil and Crude).

Hedge See Hedging

Hedge Ratio The ratio, determined by the option’s delta, of futures to options required to establish a riskless position. For example, if a $1/barrel change in the underlying futures price leads to a $0.25/barrel change in the option premium, the hedge ratio is 4 (four options for each futures contract).

Hedging (also Hedge) The simultaneous initiation of equal and opposite positions in the cash, physical and futures markets. Hedging is employed as a form of financial protection against adverse price movement in the case market.

Historical Volatility Measures past price movements.

Hub Also see Tributary Supply Network.

ICE IntercontinentalExchange (NYSE: ICE) is an American financial company that operates Internet-based marketplaces which trade futures and over-the-counter (OTC) energy and commodity contracts as well as derivative financial products.

Imbalance The difference between the quantity a deal specifies and the quantity received or delivered.

Implied Volatility A measurement of the volatility of the underlying commodity futures price based on the market traded option premium, as opposed to the calculation of volatility from historical futures prices.

In-The-Money An option is in-the-money if the underlying futures price is above a call option’s strike price, or below a put option’s strike price.

In Transit Inventory Inventory that is being transported between domestic storage locations at a given time.

Integrated Tug Barge A tandem vessel arrangement consisting of an oceangoing tug and an unmanned ocean barge, joined together with a rigid but quick-release connection. Rigidly connected tug barges combine the speed and maneuverability of a ship with the economics of a tug and barge.

Integration A term which describes the degree to which one given company participates in all phases of the petroleum industry. The largest of the so called “integrated” oil companies include the major US oil companies which participate in all aspects of the industry, from exploration and production through transportation, refining, distribution and marketing.

IntercontinentalExchange, See ICE

International Petroleum Exchange, London (IPE) One of the world’s largest energy futures and options exchanges. Its flagship commodity is Brent Crude is a world benchmark for oil prices. The IPE was acquired by the IntercontinentalExchange in 2001.

Interface   The common boundary between two things. The point or area at which to dissimilar products or grades of crude oil meet in a pipeline as they are pumped, one behind the other.

In-transit Inventory Crude/product volumes where we have taken possession, but is in inventory at another owner’s storage locations.

Intrinsic Value An option’s intrinsic value is equivalent to its in-the-money valuation.

Inventories Liquid barrels of crude oil and refined petroleum products that are stored in the primary (bulk) and secondary (rack) distribution systems.

Inventory Transfer Physical product is involved, but no movement takes place. Title transfer in the tank or pipeline.

IPE See International Petroleum Exchange.

Joint-Venture Pipeline Either: (1) a corporate joint venture in which two or more companies own stock in a pipeline company; or less frequently (2) the undivided interest system.

Jones Act Commonly used term for the Merchant Marine Act of 1920 that provides for the protection of the U.S. merchant fleet by excluding foreign-built, owned, or operated ships from the U.S. domestic trades. The Jones Act covers all waterborne transportation between U.S. ports, including inland waterways and the Great Lakes, and the ocean borne trade between the U.S. mainland and Alaska, Hawaii, and Puerto Rico.

Landed Price The actual delivered cost of oil to a refiner, taking into account all costs from production or purchase to the refinery.

Last Trading Day The final day for a particular delivery month futures contract or option contract. Any futures contracts left open following this session must be settled by delivery.

Letter of Credit (LC) A guarantee of payment from the issuing bank, acting at the request of the customer, to a third party (the beneficiary), provided set terms and conditions are met.

Letter of Indemnity A letter of guarantee issued by a bank to a purchaser on behalf of an oil company selling a cargo of crude or product. This letter indemnifies the purchaser against loss in the event that the seller cannot establish title to the cargo. Letters of indemnity are often required where a single cargo is purchased and sold several times over a short period. In these instances, there is often a significant time lag as the true title documents (bills of lading) are passed through the trading chain.

Lifting  Refers to tankers and barges loading cargoes of petroleum at a terminal or transshipment point.

Lighter To convey by a flat-bottomed barge to or from ships.

Lightering A vessel activity where part of the cargo carried by a deep water vessel is pumped into a barge or smaller ship to enable the larger vessel to enter shallow waters for discharge. For safety reasons, some locations require lightering for all vessels to limit the size of a cargo being discharged at the dock.

Limit The maximum amount a futures price may advance or decline in any one day’s trading session.

Limit Order A contingent order for an option or futures trade specifying a certain maximum (or minimum) price, beyond which the order is not to be executed.

Line Fill The petroleum contained in all pipes, manifolds, pump and valve bodies, and the bottoms of tanks used by pipelines.

Liquidation The closing out of futures and options positions.

Liquidity A market is said to be “liquid” when it has a high level of trading activity, and it is easy to convert an asset to cash.

Liquidity Risk The risk that there is no counterparty quickly identified to accept an offsetting position.

Load-To-Load A wholesale contract that is ongoing (also known as a posting or spot). The contract’s constraint would be the customer’s credit. The price for the product will be the spot price, set daily. The contract will specify the product and location for a customer.

Loading Time The time required for transporting equipment to be spotted, inspected, loaded, and released to move. It varies from shipper to shipper, and is contingent on shipper facilities; i.e., congestion within facilities, age of facility and equipment, etc.

Local Traffic Traffic moving between points on same carrier.

Long Position In the futures market, the position of a futures contract buyer whose purchase obligates him to accept delivery unless he liquidates his contract with an offsetting sale. In the options market, position of the buyer of a call or put option contract.

LOOP See Louisiana Offshore Oil Port.

Lot Any definite quantity of a futures commodity of uniform grade; the standard unit of trading.

Louisiana Offshore Oil Port (LOOP) A deepwater seaport in the Gulf of Mexico off the coast of Louisiana.. LOOP provides tanker offloading and temporary storage services for crude oil transported on some of the largest tankers in the world. Most tankers offloading at LOOP are too large for U.S. inland ports.

Major  A term broadly applied to those multinational oil companies which by virtue of size, age, and/or degree of integration, are among the pre-eminent companies in the international petroleum industry.

Manifold An array of piping valves that connect the tanks, pumps, and pipelines.

Margin Funds or goods faith deposits posted during the trading life of a futures contract to guarantee fulfillment of contract obligations. Margins are also required on short options positions.

Margin Call A demand for additional margin funds when futures prices move adverse to a trader’s position.

Marker Crudes   Those global crude oils that are considered representative of particular sources and refining centers for purposes of crude pricing market information.

Market-On-Close (MOC) An order to buy or sell at the end of the trading session at a price within the closing range of prices.

Market Risk The risk that a change in market dynamics, especially price, will change the financial position of an oil company or trader.

Maximum Economic ( or Delivery Capacity) (MEC/MDC) The maximum volume that a fully expanded pipeline can move economically between two points without constructing a loop.

Maximum Operating Inventory The inventory level below which operating problems and shortages would begin to appear in a defined distribution system. Includes “unavailable” inventory as well as “required working” inventory necessary to maintain normal operations; does not include seasonal inventory (see figure 4).

Maximum Price Fluctuation A commodity exchange’s standardized maximum limits for fluctuations in futures prices during any one trading session.

Minimum Price Fluctuation Minimum unit by which a futures price or an option premium can fluctuate per trade.

MOC See Market-On-Close.

MOD/MOT Method Of Delivery or Method Of Transportation. This is typically identified in the contract to establish how the delivery will take place. Examples are: barge, vessel, tank truck, rail tank car, pipeline, and book transfer.

Movements  Most often thought of from an oil company’s perspective as a receipt or a delivery. Every physical pipeline or vessel movement therefore consists of two movements: one to load the oil into the pipeline or vessel and another to discharge at the destination.

Moves  See Movements.

Naked Option A short position taken without having an offsetting position in the futures market.

Net Available Shell Capacity The total shell capacity of tankage less the unavailable space for tank tops and safety allowance (see figure 4).

Netback Industry term referring to the net FOB cost of product offered on a delivered or CIF basis. It is derived by subtracting all costs of shipment from the landed price.

Net Out When payables and receivables with one customer counteract each other to derive one payable or receivable.

Net Position The difference between the open long contracts and the open short contracts in any one commodity.

Net Volume The gross volume adjusted for temperature (60 degrees Fahrenheit is standard) and gravity.

Net Volume Agreement An agreement or agreement clause which provides both parties the right to net out purchases and sales for settlement purposes. Netout agreements save administrative work associated with billing and paying many offsetting purchases and sales. For agreements which specify delivery locations (and therefore require nominations), netouts also reduce the fees paid to the pipeline to process nominations.

Nominate The process by which a shipper notifies a pipeline company of the amount of petroleum he wishes to ship during the next month. Notification is usually done by letter or telegram.

Nomination An instruction typically sent by a purchaser of petroleum products or related services to a supplier requesting performance under an existing agreement and specifying the specific terms. Nominations trigger the scheduling process in so far as they prompt suppliers to schedule available resources (pipeline space or petroleum products) to satisfy contractual obligations. Confirmations of nominations are issued back to the purchaser once the supplier has completed the scheduling process.

Offer A motion to sell a futures or option contract at a specified price.

Offset A transaction which liquidates or closes out an open contract position.

Offsetting Position The opposite side of a trading position to limit risk and exposure. A short market position may require a long hedge as offsetting opposition and vice versa.

Oil Price Information Service (OPIS) OPIS is a comprehensive source of US wholesale and retail petroleum prices, tracking more than 90,000 daily retail gasoline prices, and 70,000 rack and spot prices for heating oil, gasoline, diesel, kerosene, jet fuel, LP-Gas, residual fuel, natural gas and ethanol. More than 100 billion gallons of fuel are purchased annually based using an OPIS Price Index.

On-Board Storage The storage capacity that is used to fuel an engine in any transpiration mode, such as the gasoline tank in an automobile an diesel tanks on trucks.

Open Interest Or Commitment The number of contracts in existence at any period of time which have not yet been satisfied by an offsetting sale or purchase by actual contract delivery, or in the case of options, by exercise.

Open Order A resting order that is good until canceled.

Open Outcry A method of public auction for making verbal bids and offers for contracts in the trading pits or rings of commodity exchanges.

Open Price The price for a given futures commodity that is generated by trading through open outcry at the opening of trading on a commodity exchange.

Operable Capacity (refinerys) The maximum amount of input that can be processed by a crude oil distillation unit in a 24-hour period, making allowances for processing limitations due to types and grades of inputs, limitations of downstream facilities, scheduled and unscheduled downtimes, and environmental constraints. Includes any shutdown capacity that could be placed in operation within 90 days.

Operating Cycle The cyclic process of delivering oil form one or more supply tanks at one location in the distribution system to another tank or tanks in the system to meet demand. The volume and frequency of the cycle are a function of many factors, including the location of both supply and demand, the level of demand, the availability of transportation and refinery facilities, the mode of transportation, and the availability and size of tankage.

Operating Space Space in the primary storage system in excess of the minimum operating inventory, available for holding additional inventories while still maintaining a workable system. Includes seasonal inventories and inventory build-up for planned maintenance.

Operational Risk The risk that losses will be incurred due to errors or inadequacies in the various systems or processes necessary to structure, price, trade and manage positions within the organization.

OPIS See Oil Price Information Service.

Option(s) An option is the right, but not the obligation, to buy or sell a commodity at a fixed price – the strike or exercise price –during a specified period

Option Premium  The amount the buyer pays to a seller for the rights of an option contract.

Optionality Simply stated is about choice. For example, it’s a choice to employ an asset in a market-based, coordinated fashion. Also, the potential for making additional choices that are available only after an initial choice.   The value of additional optional investment opportunities that are available only after having made an initial investment.

Organized Exchange The term used for a public, regulated market or forum where contracts can be traded, ad a quoted, published or transparent price.
 
Original Margin The initial deposit of funds, as good faith monies, at the outset of trading a futures contract in order to guarantee fulfillment of its obligations.

Out-Of-The-Money An option that has no intrinsic value. For example, a put option is out-of-the-money if its strike price is below the underlying futures price.

Over-The-Counter Options A type of option that is established between two different parties which does not involve an exchange such as NYMEX. The terms and conditions of the option are set independently by the parties to the option.

Paper  The term used for financial contract instruments that derive their value from the underlying commodity.

Paper Barrel Exchange traded derivative or contract representing the permission to buy or deliver physical cargoes of crude or products.

Par Or Basis Grade The grade or grades specified in a given futures contract for delivery. A contract may permit substitutions for and deviations from the par grade subject to specified premiums for discounts.

Payload Capacity The cargo capacity of any transportation mode used to transport petroleum, such as barge, tank car, and tank truck.

Perpetual Inventory Inventory calculated based on an opening position and the sum of all receipts, deliveries, losses and adjustments, without reference to the actual physical inventory in storage.

Petroleum Product Broad definition of gasoline, distillate, and heating oils — the output of a petroleum refinery.
 
Pipeline A long steel tube through which petroleum is pumped between multiple points, either offshore or onshore.

Pipeline Fill Inventory in a pipeline between the shipping and receiving tanks in the pipeline system.

Pit Or Ring The place on the floor of an exchange where a commodity futures or option contract is traded by open outcry.

Platts   A commonly used pricing service. Lists high/low market prices by region and product.

Point Or Tick The smallest monetary unit of change in a futures price or an option premium.

Position The number of barrels in a given type of agreement in a given delivery period which are priced. The total position is the sum of positions for all agreement types, although this calculation is only meaningful in certain contexts. Physical inventory is another position. Unpriced commitments are not included in positions since they do not present a price risk. Also often excluded are system barrels required to operate (tank bottoms, line fills, etc.) which are long-term barrels neither to be bought nor sold.

Posted Price The price some oil purchasers will pay for crude oil of a certain API gravity from a particular field or area.

Premium The price of an option determined by buyers and sellers in open, competitive trading on the exchange trading floor.

Prepayment Advance payment for a product movement. Interest is usually received.

Primary Distribution System The system of tanks, caverns, terminals, pipelines, tankers, barges, tank cars, tank trucks, and refineries that receive, transport, store, and refine crude oil into products for delivery to bulk distribution terminals, the secondary distribution system, or certain end-users. Does not include the Strategic Petroleum Reserv

Private Carrier Any person, partnership, or corporation other than common or contract carrier that transports its own property, and the transportation furthers of its own commercial enterprise.

Private Line A pipeline owned and operated to move only the owner company’s crude oil, LPG/NGL, or products.

Processing Agreement An agreement where a company delivers crude oil to a refiner and takes the resulting refined products in specified proportions. Normally a processing fee is charged by the refinery to cover operating costs.

Product Distribution Terminal A facility consisting of storage tanks, pumping equipment, meters, and loading docks where the product is pumped into trucks or tank cars for delivery to bulk plants or service stations. Terminals normally receive products from pipelines, barges, and tankers.

Prompt Barrel Product which will move or become available within three to four days.

Prompt Price   A commodity’s for immediate delivery.

Proration A method of apportioning pipeline use when nominated shippers’ volumes exceed the pipeline capacity.

Put Option An option that gives the buyer/holder the right to enter into a short futures position at a predetermined strike price and obligates the seller/writer to a long futures position should the option be exercised.

Quicky Summary of the open trading position by report flag, region, product and customer.

Rack A loading rack for tank trucks. “Rack” is often used to refer to a variety of activities associated with delivery of motor fuels to retail gas stations. These include: “rack pricing” meaning prices set for sales made at the rack to retail stations and “rack business” meaning any activity associated with the commercial class of trade. Because of the volume of rack transactions, rack business is a major part of the downstream business.

Rack Network Movements beyond a terminal – primarily by tank truck or rail tank car.

Rack Price Price charged by a supplier to a customer that buys transport truck lots at a terminal, on an FOB basis.

Rally  An advancing price movement following a decline in a market.

Range The difference between the highest and lowest prices recorded during a given trading period.

Reconciliation The accounting term used in product and crude exchanges to evaluate and settle any differences in barrels and/or value as designated in the exchange agreement.

Refiner-Marketer A marketer of gasoline and/or heating oil who operates his own manufacturing (refinery).

Refinery A plant used to separate the various components present in crude oil and convert them into end-use products or feedstocks for other manufacturing processes.

Region Varies from company to company but typically a large geographical area converting several states and one or more refineries. Regions form the basis of decentralized business units such as wholesale and retail marketing, and are less often used to distinguish different supply and trading activities.

Residual Fuel Very heavy fuel oil produced from the residue in the fractional distillation process rather than from the distilled fractions.

Resting Order An order away from the market waiting to be executed.

Right-of-way Markers Signs used to physically mark pipeline crossings and routes.

Rollover A special futures straddle trading procedure involving the shift of one month of a straddle into another future month while maintaining the other contract month of the original spread position. The shift can take place in either the long or short straddle month.

Route (a) course of direction a shipment moves; (b) designation of motor carrier or rail lines from point of origin to point of delivery.

SBM See Single Buoy Mooring.

Schedulers Determine how/when to move products/crude.

Scow A large flat-bottomed boat with broad square ends.

Seasonal Inventory Inventory that is not immediately needed to support current demand levels, but is maintained in anticipation of higher (seasonal) demand levels that cannot be met with then-current manufacturing or transportation capabilities.

Secondary Distribution System Includes non-consumer bulk plants and facilities of resellers of petroleum products, such as gasoline service stations, jobbers, and fuel oil dealers.

Segregated Products or crude oil moved through a pipeline in a manner that maintains the identify and specifications of each individual batch.

Settlement Date The date that pipeline crude deal liabilities are settled (paid for). Generally the twentieth of the month for the preceding month’s domestic crude and the twenty-fifth for foreign crude.

Settlement Or Settling Price The most representative price prevailing in a given commodity futures contract near the close of daily trading. Settlement prices are used to determine margin calls and invoice prices for deliveries.

Shell Capacity of Tankage The design capacity of the tank.

Short Position In the futures market, the position of a futures contract seller whose sale obligates him to deliver the commodity unless he liquidates his contract by an offsetting purchase. In the options market, the position of the seller of a call or a put option. The short in the options market is obliged to take a futures position if he is assigned for exercise.

Short And Over (S/O) This is a relative number derived by the inventory and purchases/sales to give a rough idea on how long we are for a particular product and region.

Single Buoy Mooring (SBM) The term for loading buoys anchored offshore which serve as a mooring point for tankers to (off)load gas or fluid products.

Slippage A term used in marine movements when a scheduled voyage incurs some delay.

Small Ticket Generally orders that call for the movement of product by trucks. The individual move quantities are generally smaller than big ticket and billing is done on a daily basis.

Sour/Sweet Crude Industry terms which denote the relative degree of a given crude’s sulfur content. “Sour” crude refers to those crudes with a comparatively high sulfur (generally 1.5% wt. and above); and “sweet” to the lower sulfur grades.

Specifications Term referring to the properties of a given crude oil or refined petroleum product, which are “specified” since they often vary widely even within the same grade of product. Generally, the major properties of oil that are guaranteed are API gravity, sulfur, pour point, viscosity and BS&W.

Specific Gravity The ratio of the density of a substance at a particular temperature to the density of water at four degrees Centigrade.

Speculator An individual who invests in commodity futures with the objective of achieving profits by successfully anticipating price movements.

Spot A contract which is a one-time event. Also see Load-To-Load.

Spot Freight Rate  A transportation rate available in a marketplace based on short-term, auction style contracts.

Spot Market A global refining, transportation or market location where a wide variety of prompt, auction-type trades are available.

Spot Month The futures contract closest to maturity. The nearby delivery month.

Spot Sale  A crude or product transaction made under a contract which is a one-time event, often done in what is considered to be an auction market.

SPR An emergency store of petroleum maintained by most developed countries around the world, to minimize the impact of long term supply disruptions.   See Strategic Petroleum Reserve

Spread (Futures) The simultaneous purchase of one futures contract and sale of a different futures contract. Also refers to a futures contract purchase in one market and a simultaneous sale of the same commodity in some other market. May also refer to a futures contract purchase in one month and the sale of the identical contract in another month.

Spread (Options) The purchase and sale of two options of the same type (calls or puts) which vary in terms of strike prices, expiration dates or both.

Stocks See definition of inventories.

Stop-Loss A resting order designed to close out a losing position when the price reaches a level specified in the order. It becomes an at-the-market order when the “stop” price is reached.

Stores The term for the parts, supplies, food, water, etc (outside of the fuel) needed for a voyage of a vessel.

Straddle (Futures) Also known as a spread, the purchase of one futures month against the sale of another futures month of the same commodity. A straddle trade is based on a price relationship between the two months.

Straddle (Options) The purchase or sale of both a put and a call having the same strike price and expiration date. The buyer of a straddle benefits from increased volatility, and the seller benefits from a decline in volatility.

Strangle (Options) Similar to straddles, only at different strike prices (usually at out-of-the-money prices).

Strategic Petroleum Reserve (SPR) A federal program created by the Energy Policy and Conservation Act of 1975 to establish a reserve of up to one billion barrels of crude oil and/or petroleum products in order to reduce the impact of disruptions in petroleum supplies and to carry out the obligations of the United States under the International Energy Program.

Strike Price The price at which an option may be exercised. Also called an exercise price.

Strip A strip is quoted as an average price for equal contracts per month of all of the months within the quoted time period.

Structured Deals  An unconventional, one-off arrangement. Structured products usually involve a complex hedge or arbitrage scenario, initiated by a particular trading partner to suit a unique business need.
 
Swap An option on a wet barrel or cash contract. If the option is exercised, the buyer of a call or the issuer of a put converts the option into a contract to purchase or sell crude or petroleum products. It is different to a put or call option in that the conversion of a swap leads to a contract commitment and not actual barrels.

Sweet  A term used to describe crude with low sulfur content.


Swing Tankage Tankage that is used to store different products at different times of the year.

Tank Barge Carries liquid cargo in bulk, stowed in cargo tanks within vessel hull. Cargo is pumped aboard and unloaded by shore terminal equipment or the vessel’s installed pumping system. Sizes range from 10,000 to 42,000 dead weight tons. Approximately 4,252 are presently in domestic coastal service.

Tank Bottoms Inventory that falls below the normal suction line of the tank. For floating-roof tanks, the amount required to keep the legs of the roof from touching the tank bottom. The inventory in tank bottoms (including BS&W) is unavailable.

Tank Car Rail car used for transporting liquids in bulk. It is constructed in accordance with having specifications, depending on the physical properties and characteristics of products to be transported.

Tank Farm A group of tanks manifolded (piped) together to provide origin, destination, or operational storage for pipeline/bulk movements.

Tank Heels Industry term for the volumes of feedstock or product which cannot easily be pumped from storage tanks. Otherwise referred to as tank bottoms.

Tariff  A schedule of rates or charges permitted a common carrier or utility; pipeline tariffs are the charges made by common carrier pipelines for transporting crude oil or products from an origin to a destination.

Tariff The document published by the common-carrier pipeline owner setting rates charges and rules and regulations under which services will be performed. Interstate common carriers must file tariffs with the Federal Energy Regulatory Commission.

Tariff Rate The charge in cents per barrel, set in the published tariff, that a shipper must pay for transportation services.
Technical Analysis Examination of patterns of futures price change, rates of change, and change in trading volume and open interest, often by charting in order to predict and profit from such trends.

Term Sale A crude or product transaction made under a contract which is a continuous event. Often called evergreen if the agreement extends for years. The opposite of a spot sale.
 
Throughput   A term used to describe the total volume of raw materials that are processed by a plant such as an oil refinery in a given period. Also refers to the total volume of crude oil and refined products that are handled by a storage facility or pipeline.

Tick See Point

Tow One or more barges pushed by a towboat or pulled by a tugboat.

Trade or Trading To take a physical or financial position in any commodity.

Traders Buy, sell and exchange products, crude and market shares. Enter into contracts with customers/suppliers.

Trading Volume The number of transactions in a contract made during a specified period of time.

Trailer Vehicle (bulk tank) without motive power designed to be drawn by a tractor and so constructed that no part of its weight rests upon the towing vehicle. Also a second trailer; i.e., pup attached to first trailer with single tractor. Specifications vary for physical properties and characteristics of products carried.

Transmix A hybrid product created by intermixing dissimilar products at the interface in a pipeline movement.

Trend  The general direction of price movement.

Tributary Supply Network   Also see Hub.

Truck Powered vehicle with bulk tank on same chassis (capacity in excess of 3,500 gallons). Possible varying specifications due to characteristics of products carried.

Trunk Line A large-diameter pipeline that usually delivers petroleum into a refinery or production distribution terminal.

Unavailable Inventory Includes inventory in tank bottoms, pipelines, refinery pipelines, and operating equipment; quantities set aside as plant fuel or pipeline prime mover fuel; and oil in transit by truck, tank car, barge, and tanker from domestic sources.

Unavailable Space Top portion of a tank that is not available to store inventory but is required for design or safety considerations; e.g., to allow for thermal expansion.

Undivided Interest A form of pipeline ownership in which the investors share in the pipeline capacity according to their percentage of ownership in the system. Each publishes a tariff and collects its own revenues. One investor is usually employed to manage, schedule, operate, and maintain the facilities.

Urals Crude European marker crude for the Russian exported crudes.

Value at Risk (VAR) The maximum potential loss in a portfolio over a specific period of time given a certain probability.

VAR See Value at Risk.

Variance A percentage specified at the report flag level. It will determine when a deal has been completed by using the quantities of the moves.

Vessel Traffic Services (VTS) An integrated system encompassing the variety of technologies, equipment, and people employed to coordinate vessel movements in or approaching a port or waterway.

Vetting A process performed during spot chartering of a ship to ensure it can perform a proposed voyage safely in compliance with company policies, and that it is dimensionally appropriate for the proposed load and discharge ports. Often vetting involves the supplier or the purchaser of the cargo in addition to the oil company performing the charter, to ensure they are prepared to handle the ship.

Viscosity The internal resistance to flow of a fluid. This characteristic is usually measured in Saybolt Seconds Universal (SSU) for petroleum liquids. This is the time required for a standard quantity of a liquid to flow through a standard orifice at a set temperature.

VLCC (Very Large Crude Carrier) Crude oil supership with over 200,000 DWT.

Volatility A statistical measure of dispersion of either historical or expected commodity price changes. It can be derived from the standard deviation of logged rates of return of these prices.

Volume The number of transactions occurring during a specific period of time. Equal to the number of purchases or sales of contracts made during the period.

Waterway More than 25,000 miles of navigable rivers, canals, and channels in the United States, maintained to a depth of at least nine feet.

West Texas Intermediate (WTI) US Gulf Coast marker crude.

Wet Barrel An actual barrel of product already physically in storage at the time of a given transaction; as opposed to a “paper barrel” which appears only as a credit in an accountant’s ledger.

“Wet” Barrel Delivery Futures market delivery mechanism involving the physical transfer of the commodity during the delivery month.

Working Inventory That portion of the minimum operating inventory required above the unavailable inventory required to keep the distribution system functioning normally without operating problems and run-outs.

Worldscale (WS) The standard system for assessing vessel marine freight rates.

WTI See West Texas Intermediate A premium quality sweet (low sulfur content) crude oil that yields a high percentage of gasoline and high-quality diesel and aviation fuel.

WS See Worldscale.

WS Flat Rate 100% of the standard freight rate between two points, set annually to give ship owners a reasonable return on their investment.

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