Oil supply & trading seminar ‘Fuel Oil and Bunker Trading' 24 - 25 July 2008, Singapore

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Programme:

DAY ONE

08.45 Registration

09.00 Introduction

• Course content, approach/ syndicates exercises, industry jargon/ definitions

09.30 Oil Markets and Oil Trading

• Global supply and demand; crude oil and oil products markets; major bunker fuels markets
• Regional balances, trade flows, market drivers
• Physical, forwards, futures and derivatives markets
• Why trade?
• Term and spot deals

Key Issues: Projections of international flows of oil products and implications for fuel oil and bunker traders, particularly in respect of low sulphur fuel oils.

10.15 Oil Refining

• Crude oil types, origin, crude oil assays
• Refinery types and key processes
• Products produced
• Yields
• Refinery economics and feedstock valuation - GPW, netbacks, refining margins
• Upgrading and conversion processes
• The basics of product quality and specifications
• Fuel oil – key specification issues

Key Issues: The key characteristics of bunker residue and distillate fuels and how they are produced by refinery processes and by blending operations.

11.00 Coffee

11.30 Shipping & Freight

• Tankers – types and characteristics
• Worldscale system
• Basic principles of chartering and types of charter; lay time and demurrage; Bunker fuels

Key Issues: How freight costs are calculated, their importance for determining trading economics and the importance of critical charter conditions for fuel oil/ bunker traders.

12.15 Asia Pacific Fuel Oil Supplies – Overview

• Markets – China/ India
• Supplies/ balances
• Sources for imports – Arabian Gulf, Former Soviet Union, US/ Caribbean
• Singapore bunker market – quality issues

Key Issues: Asia Pacific growth and supply challenges

13.00 Lunch

14.00 Exercise 1: Freight Exercise

Key Issues: Understanding how freight rates are calculated.

14.45 Oil Pricing

• Crude and product price markers
• Market reporting, price assessments, information sources and methodologies
• Pricing mechanisms
• Crude and product markers and formula pricing
• Flat prices, differentials, pricing periods

Key Issues: How oil is priced, simple and complex formulae, specifics for bunker fuel components (e.g. residues, distillate and cutter stocks).

15.30 Coffee Break

16.00 Exercise 2: Gross Product Worth/ Netback Value/ Refinery Margins

Key Issues: How the values of typical high and low sulphur crude oils in a refinery are affected by the market values of the products generated, in particular the fuel oil components used to make bunker fuel oil; how netbacks/ refining margins are calculated.

16.30 Basics of Physical Oil Contracts

• Outline structure and clauses
• General Terms and Conditions
• Types of sale: FOB, CIF, Delivered etc. – responsibilities of seller and buyer
• Standard provisions in GT& C’s
• Key clauses, disputes and claims. Issues and problems
• Doing a deal

Key Issues: Product specifications and general contract conditions are of fundamental importance to bunker fuels suppliers and traders.

17.15 Forward and Futures Markets

• BFO contract, partials, book outs
• Dubai/Oman, WTI, Tapis
• Futures exchanges and futures contracts
• Futures – operation and use
• Summary of crude, gasoil and gasoline contracts

Key Issues: How these markets work and the specific challenges facing bunker suppliers and traders in the absence of active/ liquid futures markets for fuel oil.

18.00 Refining Video

18.30 Close

DAY TWO

09.00 Price Risk and Hedging

• Price risk & exposure
• Long & short (mini-class exercise)
• Introduction to hedging and hedging tools; hedging examples

Key Issues: Basics of price risk management and choices facing bunker fuels traders and suppliers; cargo sales/ purchasing, bunker sales (retail) and inventory (stock) hedging, control systems.

09.45 Exercise 3: Hedging with Futures

Key Issues: Understanding price exposure and how trading activity and hedging actions affect the net price exposure position.

10.15 Fuel Oil Blending/ Key Issues

• Basic principles
• Linear blending
• Non-linear blending

Key Issues: Commercial importance of blending and basic blending to adjust sulphur, viscosity, metals; compatibility problems with straight-run/ cracked fuel oils.

11.00 Coffee

11.30 EU Legislation/ Marpol Annexe VI – Implementation

• Baltic SECA; area, regulations, vessel options, exhaust scrubbing
• North Sea/ English Channel SECA; extension, implications, supply options
• Implications for NWE low sulphur fuel oil supply balances and EU/ Asia Pacific international fuel oil trading
• New price drivers for bunker fuels

Key Issues: Affect of the new regulations on customers, suppliers and traders; forward supply/ demand balances for low sulphur residues; reaction of vessel owners/ operators and likely impact on demand patterns.

12.15 Bunker Business Profitability

• Supply sourcing
• Sales and marketing
• Cost control/ working capital
• Payment security
• Trading

Key issue: How to make money from bunker fuels?

13.00 Lunch

14.00 Trading Strategies/ Market Structure & Arbitrage

• Forward price curve
• Contango and backwardation
• Differentials, spread trading, crack spreads
• Arbitrage
• General principles
• Examples (includes mini-class exercise)

Key Issues: Appreciation of how market structure affects fuel oil traders’ and bunker suppliers’ trading and hedging activities.

14.45 Over the Counter Derivatives

• Summary and definitions
• CFD’s and Swaps
• Applications
• Documentation

Key Issues: Understanding of the importance of using derivatives for hedging fuel oil and bunker prices and managing international arbitrage trading opportunities, in particular the west-east fuel oil arbitrage (without access to appropriate futures markets).

15.30 Coffee Break

16.00 Exercise 4: Negotiation - Sale of a cargo of fuel oil

Key Issues: Concluding the transaction within the time constraints allowed ensuring main contract issues have been covered and agreed to the satisfaction of both negotiating parties.

17.15 Syndicate Reports on Exercise 4

17.45 Course Summary & Feedback; Final Remarks

18.00 Close