WHAT IS OIL?

Crude oil is the term for "unprocessed" oil, the stuff that comes out of the ground. It is also
known as petroleum. Crude oil is a fossil fuel, meaning that it was made naturally from decaying
plants and animals living in ancient seas millions of years ago -- anywhere you find crude oil was
once a sea bed. Crude oils vary in color, from clear to tar-black, and in viscosity, from water to
almost solid.

Crude oils are such a useful starting point for so many different substances because they contain
hydrocarbons. Hydrocarbons are molecules that contain hydrogen and carbon and come in
various lengths and structures, from straight chains to branching chains to rings

WHAT IS OIL REFINING?

Crude oil contains hundreds of different types of hydrocarbons all mixed together. You have to
separate the different types of hydrocarbons to have anything useful. Fortunately there is an easy
way to separate things, and this is what oil refining is all about.

Different hydrocarbon chain lengths all have progressively higher boiling points, so they can all
be separated by distillation. This is what happens in an oil refinery - in one part of the process,
crude oil is heated and the different chains are pulled out by their vaporization temperatures.

Below is a diagram of what happens in a cracking tower.

WHAT PRODUCTS ARE PRODUCED FROM THIS PROCESS?

The following products are extracted from the tower.

 Petroleum gas - used for heating, cooking, making plastics

 Naphtha or Ligroin - intermediate that will be further processed to make gasoline

 Gasoline - motor fuel

 Kerosene - fuel for jet engines and tractors; starting material for making other products

 Gas oil or Diesel distillate - used for diesel fuel and heating oil; starting material for
making other products

 Lubricating oil - used for motor oil, grease, other lubricants

 Heavy gas or Fuel oil - used for industrial fuel; starting material for making other
products

 Residuals - coke, asphalt, tar, waxes; starting material for making other products

WHAT TYPES OF TRADE CAN BE DEALT?

CRACKS.

We trade deals called cracks, this is where you purchase crude oil and sell a product or vice versa.

It is called a crack because it resembles the cracking tower. We are effectively looking to take
money from the movement in price between Crude oil and the by-products it produces. This is a
very liquid spread and the price can vary dramatically.

When looking at the products that can be used in a crack there are different specifications for
each product, therefore a conversion factor is used to calculate the volume and price, the
specifications will be shown in the next section.

ARBS

This is where a product is bought in one market and a similar product is sold in another market
and the profit is made from the movement between the two contracts.

In the energy markets there are a number of arbitrage opportunities as shown below:

BRENT (IPE) VS WTI (NYMEX)

BRENT (IPE) VS DUBAI (OTC – ASIA)
GASOIL (IPE) VS HEATING OIL (NYMEX)
GASOIL (IPE) VS GASOIL SINGAPORE (OTC ASIA)
1% FUEL EUROPE VS 1% FUEL NY HARBOR
3.5% FUEL EUROPE VS 3% FUEL US GULF COAST
REGRADES

This is a spread between Singapore Gasoil 0.5% and Singapore Kerosene.

TIME SPREADS

This is a spread between one contract but in different months, in Oil unlike many other Futures contracts
you have 12 contracts per year, so the opportunity to trade monthly spreads is often used. This is also true
in the OTC market.

GEOGRAPHICAL SPREADS

Here the same product is traded in the same month but out of two different geographical locations, for
example the March Jet can be bought from CIF N.W.E and sold FOB MED.

FUTURES PRODUCT SPECIFICATIONS

CRUDE OIL

BRENT CRUDE OIL

UNIT = BBL
MINIMUM TICK SIZE = 1 cent
CONTRACT SIZE = 1000 BBLS per Future
MARKET = IPE

WTI (West Texas Intermediate)

UNIT = BBL
MINIMUM TICK SIZE = 1 cent
CONTRACT SIZE = 1000 BBLS per Future
MARKET = NYMEX / ACCESS

GAS OIL

IPE GAS OIL

UNIT = MT
MINIMUM TICK SIZE = 25 cent
CONTRACT SIZE = 100 MTS per Future
MARKET = IPE

HEATING OIL
UNIT = GLNS
MINIMUM TICK SIZE = 0.01 CENTS
CONTRACT SIZE = 42,000 GLNS per future
MARKET = NYMEX

CONVERSION RATES

To convert a product from a barrels price into a metric tonnes price or a gallons price into a
barrels price in order to do a crack or an Arb you need to know what conversion factors are used.
Below are a list of the conversion factors used in Futures.
BBL to MT = 7.45 MT per BBL
BBL to GLN = 42 GLNS per BBL

OTC PRODUCTS

EUROPEAN PRODUCTS

*All products marked with a star have many forms in which they can be traded. They can be in
Barges or Cargoes, they can be traded out of Northwest Europe (ARA) or Mediterranean and they
can have specifications of CIF and FOB. For details of what these mean, please see section
Market Terminology.

BRENT UNIT = BBLS

DATED BRENT
B-WAVE

GASOIL
UNIT = MT CONV = 7.45MT/BBL
GASOIL 0.2

HIGH SULPHER FUEL OIL* UNIT = MT CONV = 7.45MT/BBL

LOW SULPHER FUEL OIL*

JET* UNIT = MT CONV = 7.88MT/BBLS

UNIT = MT CONV = 8.90MT/BBLS

NAPTHA*

UNIT = MT CONV = 7.45MT/BBLS

ULSD*

GASOLINE* UNIT = MT CONV = 8.33MT/BBLS

US PRODUCTS
UNIT = BBL
WTI
UNIT = GLN CONV = 42GLN/BBL
HEATING OIL

3% NY FUEL
UNIT = BBL CONV = 6.35MT/BBL
1% NY FUEL

(This can be either waterbourne or pipeline specified)

UNIT = GLN CONV = 42GLN /BBLS

UNLEADED GASOLINE
SINGAPORE PRODUCTS
UNIT = BBL
DUBAI CRUDE

SINGAPORE GO 0.5 UNIT = BBL

SINGAPORE KEROSENE UNIT = BBL

SINGAPORE 180CST FUELOIL

UNIT = MT CONV = 6.35MT/BBL
SINGAPORE 380CST FUEL OIL

MUREX PRODUCTS AND THEIR CODES

MUREX CODE DESCRIPTION

BRDATED Dated Brent – This price is published in the Platts Crudeoil

Marketwire and has an unusual calendar. This product prices
everyday that either or both IPE and NYMEX is open and not
when both are closed.

BR(1,1) Brent 1st nearby rolling 1 day early. This is the product used
when trading an OTC that is going to use the IPE Brent contract,
it uses the settlement price for the spot Brent every day of the
contract except on expiry when it uses second nearby.

BR IPE Brent. This is the IPE Brent futures contract.

DUBAI Dubai Crude. This is an Asian product and is priced in the Platts
Asia publication.

THE PRODUCTS BELOW ARE QUOTED IN PLATTS EUROPEAN MARKETSCAN.

EN590BFRT EN590 Gasoil Barges FOB Rotterdam.

EN590CCMD EN590 Gasoil Cargoes CIF MED.
EN590CFMD EN590 Gasoil Cargoes FOB MED.
EN590CCN EN590 Gasoil Cargoes CIF NWE.

F10BFNW Fueloil 1% Sulfur Barges FOB NWE.

F10CCMD Fueloil 1% Sulfur Cargoes CIF MED
F10CFMD Fueloil 1% Sulfur Cargoes FOB MED
F10CCNW Fueloil 1% Sulfur Cargoes CIF NWE

F35BFRT Fueloil 3.5% Sulfur Barges FOB NWE.

F35CCMD Fueloil 3.5% Sulfur Cargoes CIF MED
F35CFMD Fueloil 3.5% Sulfur Cargoes FOB MED
F35CCNW Fueloil 3.5% Sulfur Cargoes CIF NWE

THE PRODUCTS BELOW ARE QUOTED IN PLATTS CRUDEOIL MARKETWIRE.

F610BFNY New York Harbor Fueloil, 1% Sulfur Barges
F610CFCG US Fueloil, 1% Sulfur, US Gulf Coast Cargoes
F630BFNY New York Harbor Fueloil, 3.0% Sulfur Barges
F630CFCG US Fueloil, 3.0% Sulfur, US Gulf Coast Cargoes

THE PRODUCTS BELOW ARE QUOTED IN PLATTS EUROPEAN MARKETSCAN.

GO02BFNW Gasoil 0.2% Sulfur Barges FOB NWE

GO02CCMD Gasoil 0.2% Sulfur Cargoes CIF MED
GO02CFMD Gasoil 0.2% Sulfur Cargoes FOB MED
GO02CCNW Gasoil 0.2% Sulfur Cargoes CIF NWE
GO02CFNW Gasoil 0.2% Sulfur Cargoes FOB NWE

GO(1,1) Gasoil 1st nearby rolling 1 day early. This is the product used
when trading an OTC that is going to use the IPE Gasoil
contract, it uses the settlement price for the spot Gasoil every day
of the contract except on expiry when it uses second nearby

GO IPE Gasoil. This is the IPE Gasoil futures contract.

JETAVCFMD Jet Aviation Fuel Cargoes FOB MED.

JETBFRT Jet Fuel Barges FOB Rotterdam
JETCCNW Jet Fuel Cargoes CIF NWE
JETCFMD Jet Fuel Cargoes FOB MED

NAPCCMD Naphtha Cargoes CIF MED

NAPCCNW Naphtha Cargoes CIF NWE
NAPCFMD Naphtha Cargoes FOB MED

ULSDBFRT Ultra Low Sulfur Diesel Barges FOB Rotterdam – 50 PPM

ULSDBFRT10 Ultra Low Sulfur Diesel Barges FOB Rotterdam – 10PPM
ULSDCCNW Ultra Low Sulfur Diesel Cargoes CIF NWE – 50PPM
ULSDCCNW10 Ultra Low Sulfur Diesel Cargoes CIF NWE – 10PPM
ULSDCFNW Ultra Low Sulfur Diesel Cargoes FOB NWE – 50PPM
ULSDCFNW10 Ultra Low Sulfur Diesel Cargoes FOB NWE – 10PPM

UNLCCNW Premium Unleaded Gasoline Cargoes CIF NWE

UNLPCFNW Premium Unleaded Gasoline Cargoes FOB NWE
UNLPCF_MED Premium Unleaded Gasoline Cargoes FOB MED
UNLPFBRT50 Premium Unleaded Gasoline Barges FOB Rotterdam – 50PPM
UNLPFB_MED Premium Unleaded Gasoline Barges FOB MED
UNLPFB_ROT Premium Unleaded Gasoline Barges FOB Rotterdam – 10PPM

PLEASE NOTE: PPM IS PARTS PER MILLION

MARKET TERMINOLOGY

ARA Amsterdam, Rotterdam and Antwerp.

BARGE: A Vessel, either motorized or towed, used to carry products in navigable
waterways. Inland river barges that carry oil generally hold 25,000 bbls. Ocean
going barges range in size up to 120,000 barrels. Larger ocean-going tankers are
referred to as cargoes (Greater that 120,000 bbls)

Barrel (BBL) A unit of volume measure used for petroleum and refined products. 1 barrel = 42
U.S gallons. BBL is shorthand for barrel

B/D BPD Barrels per Day. Usually used to quantify a refiners output capacity or an
oilfields rate of flow.

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

CASH MKT The market for a cash commodity where the actual physical product is traded.

CF/D Cubic feet per day. Usually used to quantify the rate of flow of a gas well or
pipeline.

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 port of origin plus all
costs of insurance and transportation.

CRACK The simultaneous purchase or sale of crude oil against the sale or purchase of
refined petroleum product.

DELIVERY The month specified in a given futures contract for delivery of the actual
MONTH physical spot or cash commodity

DIESEL FUEL Distillate fuel oil used in compression-ignition engines.

EFP Exchange Futures for Physicals. A future contract provision involving an

agreement for delivery of physical product that does not necessarily conform to
contract specifications in all terms from one market participant to another and a
concomitant assumption of equal and opposite futures positions by the same
participants at the time of the agreement.

EFS Exchange Futures for Swaps. A transaction in which the holder of a commodity
futures position exchanges that position for a swap contract which is close to the
original futures in tenor.

FOB Free On Board. A transaction in which the seller provides a commodity at an

agreed unit price, at a specified loading point within a specified period; it is the
responsibility of the buyer to arrange for transportation and insurance

MED Mediterranean

NWE North West Europe.

NYMEX This is an international out of hours trading system offered by the New York
ACCESS Mercantile exchange. ACCESS stands for American Computerized Commodity
Exchange System and Services

SWEET OR Industry terms which denote the relative degree of a given crude oils sulfur
SOUR CRUDE content. Sour crude refers to those crude’s with a comparatively high sulfur
content, 0.5% by weight and above; sweet refers to those crude’s with sulfur
content of less than 0.5%

SPOT MONTH The futures contract closest to maturity. The nearby delivery month.

SULFER An element that is present in some oil and gas as an impurity in the form of its
various compounds.

PPM Parts Per Million. A measure of sulfur in some products