 Some of the common terms used by NYMEX and ask and ask is a motion to sell at a specific price It's the same as an offer. So ask an offer interchangeable. It's the it's your asking price What do you wish to get in the marketplace for your commodity and notice? It says emotion because they're addressing the idea of the physical Trading that takes place in the pits the movement of you know Hand gestures back and forth as traders buy and sell a bid then is the opposite It's a motion to buy at a specific price. What is your bid for the energy commodity a Bowl in this case. We're talking about a person. It's one who anticipates Prices will increase or volatility in the market will increase. They're the opposite of a bear a bear is one Who anticipates a decline in price or the volatility in the marketplace obviously the opposite of a bull This is a picture of the New York Mercatile exchange trading floor It just so happens in the foreground is the natural gas trading pit off to the left Barely seen is the crude oil trading pit notice the various colors of jackets Around the floor. I will identify who some of those are in a minute But the yellow jackets for the most part those are NYMEX compliance personnel The multi-color jackets the blues the burgundies some of the other colors represent brokers What are known as clearing brokers on the floor of the New York Mercantile exchange? They have posted credit and they have licenses to trade on behalf of their clients So we have the floor brokers, which I mentioned we have locals. These are the individuals and firms and in some cases funds that have a large amount of money And and wish to trade they are speculators They're not interested in the physical commodities whatsoever. They're interested in price movement and wherever price is moving That's where they want to be Ring reporters and ring chairman We'll drop back here a second and I will show you the ring reporters are in the yellow jackets near the trading rings themselves There is a podium if you can tell Situated above the natural gas pit with some personnel in yellow jackets. Those are the ring chairman their primary responsibility is to oversee the activity of the pits and To resolve any disputes since we have people who are yelling orders back and forth to one another and Using paper slips sometimes mistakes can be made and if there's a disagreement over the actual details of a trade The ring chairman is supposed to step down and resolve that trade between two counter parties And we have floor committee members Those are basically NIMEX committee members the New York Mercatile Exchange also has compliance People and the commodity futures trading commission is the regulatory body for energy Financial derivative trading they have their own personnel on the floor as well and then there are hundreds of Line staff from the New York Mercatile Exchange We'll now talk about each one of the specific contracts for energy commodities The first is crude oil Symbol is CL We refer to this as West Texas Intermediate or WTI crude. It is low sulfur and so therefore is given the nickname sweet crude The NIMEX contract for crude oil was initiated in 1983 Every contract represents a thousand barrels, which is the equivalent of 42,000 gallons of oil Prices price quotes on the New York Mercatile Exchange are all US dollars and cents in this case per barrel a Minimum price fluctuation that is the amount that the price has to move For a trade to take place is a penny or ten dollars a barrel The delivery point for crude oil under this contract is what's known as FOB or free on board or delivered To the sellers facilities at Cushing, Oklahoma and to any pipeline or storage facility with access to Cushing storage TEPCO or Equilon pipelines, so if you buy or sell crude oil contracts on NIMEX For a particular month you are obligated to either receive the crude oil or deliver the crude oil at Cushing, Oklahoma Deliveries are to be made uniformly across the month. This is the contractual obligation The idea here is to make all parties Deliver as equally as possible The actual obligation for instance if I sold 30 contracts for the month of September That means 30,000 barrels of crude oil The exchange would like me to deliver that at a thousand barrels a day However, if I cannot my real legal obligation is 30,000 barrels for the month The trading hours on NIMEX for what we consider to be the open outcry or pit trading The general session where the traders are in the pits yelling orders back to one another Run from 9 a.m.. To 2 30 p.m.. Eastern Standard Time the Chicago mercantile exchange also has an electronic trading platform known as Globex and This is you know virtually 24 hours a day seven days a week It starts at 6 p.m.. On Sunday evenings and ends at 5 45 p.m.. On Friday Eastern Time Crude oil can be traded for up to nine years And then we also have products that are known as strips. These are available for terms of two to thirty consecutive months In essence strips amount to an average price if I wanted to buy six months worth of crude Rather than go out and have my broker quote me one month's price at a time They'll just give me an average price across the six months. Therefore. I am purchasing a six month strip of crude oil The last trading day every contract expires again. We're talking about future contracts So currently the closest future contract is september The crude oil contract then Settles three business days prior to the 25th of the month So just in case the 25th is a non-trade trading day other weekend day Or a holiday the settlement occurs three business days prior to The business day that is prior to the business day ahead of the 25th. I know that sounds very confusing I can't quite figure it out myself half the time Margin requirements. This is a big issue here You can see that if you want to buy or sell crude oil contracts for every single contract That you wish to enter into you have to have 5100 dollars in a margin account Okay, that's a safety net against losses that you could incur This protects your clearing broker And protects the new york mercantile exchange from default by you as a counterparty This also discourages a lot of traders from just jumping in and trying to trade contracts For example, if a trader wanted to speculate on 10 crude oil contracts, that's only 10 000 barrels That's not a lot of volume per se They would have to put 51 000 dollars in a margin account before they could even get started Here is the symbol breakdown when you look at future screens or if you see the prices reported in a the wall street journal any other type of publication You'll see these funny symbols the first two letters of the symbol represent the energy commodity themselves So cl represents crude oil The second letter is the actual month of delivery. For example, u equals september The final symbol is the number that corresponds to the year in our example two So the september 2012 contract For crude oil on the nimex is expressed as cl u2 Other symbols that represent energy commodities and g for natural gas ho for heating oil rpob Is represents unleaded gasoline and then pn for propane and then here's the breakdown of the symbols that they use Feel free to use this as cheat sheet if you ever run across those quotes and can't remember what they mean When you look at future screens, you're going to see column headers that will use these types of terms When you see the open that's the opening price at the opening bell When you see people on television, you know ringing the bell for the open of whatever market it might be stock market the nimex the chicago mercantile exchange As soon as the bell goes off the very first trade that is consummated That price is registered as the open for the day The high is the highest price that traded that day including the after hours electronic trading The low is the lowest price that traded for that day including active excuse me after hours Electronic trading that gives us the range on the day What was the you know the entire range of pricing that day? When you see last that's the last trade that just occurred in other words. What was the last trade that had occurred? The net would be the change in price from that last trade To the one prior to it. So are we going up or are we going down as we're trading currently? And then change the change is the change in price From the trade that just occurred from that last trade versus the prior day settlement What was the final price for the energy commodity the day before? And where do we sit relative to that today? That's what change represents We refer to futures contract trading as a zero-sum game for every buyer. There is a seller I can't buy crude oil contracts without someone being willing to sell them to me nor can I sell them without a market And believe it or not less than two percent of all the contracts traded actually go to physical delivery In other words less than two percent Of the contracts will actually be energy commodities exchange between counterparties Now on the one hand that may sound like a small number But with each crude oil contract representing a thousand barrels And you can trade between 50 000 and 100 000 contracts a day It does amount to a substantial amount of physical energy commodities being exchanged This is what a typical future screen would look like these are the headers that I mentioned to you On the day that I printed this off you can see the Last trade was 92 dollars and 68 cents represented a drop of 19 cents From the prior days settle of 92 dollars and 87 cents in the far right corner there We had the opening price of 93 25 and a high and low on the day as well And the very far right column is the time which the trade occurred natural gas futures contracts the contract unit is 10 000 mmb to use that is 10 000 million British thermal units prices are quoted in us dollars and cents and the minimum fluctuation between trades Has to be one tenth of a penny or what we call referred to as a tick Trading hours are exactly the same But the trading months for natural gas you can actually trade natural gas out 12 years If there was in fact a need to buy yourself for that long of a period of time The last trading day for natural gas contracts the futures is the third business day prior to the first calendar day of the delivery month We do trade options in energy futures Contracts in the case of natural gas Those expire one day prior to the actual contract itself the delivery point for Buying and selling under nimex natural gas contracts is a place known as the henry hub in erath louisiana texaco has their henry plant in erath louisiana Sabine pipeline company runs the hub on behalf of the new york new york mercantile exchange And again the delivery period is to be uniform across the month In of production for which the contracts were exchanged This is a schematic of the pipelines going in and out of the henry hub There are various sources of natural gas coming offshore onshore there is gas moving to the northeast the southeast The upper midwest as well as from louisiana back into texas So it made an ideal market hub for indicating various supply and demand Settlement price every day the new york mercantile exchange Will put together a final price for that day's trading The settlement price is the weighted average of all the trades that occurred during the last two minutes of trading in that regular session Now when the closest future month or what we call the prompt month When that contract expires they're going to take the total number of trades in the last 30 minutes Come up with a weighted average and that will be the price for that month And that month rolls off as we say and it's in the history books Margin requirements for natural gas substantially less than crude oil, but the value is substantially less. So there's only $2,100 Martian requirement per contract This is what a natural gas Future screen would look like if you ever see one of these on a trading floor or somewhere else Perhaps on someone's screen who trades in these contracts. This is what it will look like We're now going to talk about unleaded gasoline referred to as rbo b rbo b stands for reform reformulated blend for oxygenated blending What we get at the gas pump you usually have the opportunity to get 100 unleaded in You know very few places Mostly it's a 90 10 that is it's 90 percent gasoline 10 percent ethanol or some other type of blending component in some cases You hear about e 85 Which is 85 unleaded 15 percent of some other added to normally something like ethanol So what's traded on the new york mercantile exchange is actually the 100 unleaded It's becomes a feedstock for unleaded because it's only 90 percent of what we get At the pump unless we're buying 100 unleaded. So it's reformulated blend for oxygenated blending. They're going to blend oxygenators into the unleaded gasoline The oxygenators are seasonal in nature depending on the regions Again oxygenators help to burn the gasoline more efficiently and therefore reduce the emissions Oxygenators are things such as ethane ethanol butane isobutane and natural gasolines Every our bob contract is 42 000 gallons us dollars and cents and the minimum fluctuation is one thousandth of a penny per gallon The delivery point is free on board or delivered into the petroleum products terminals in new york harbor Margin requirements $8100 per contract Last but not least heating oil or ho it's sometimes referred to as number two fuel oil every contract is 42 000 gallons We're still dealing with us dollars and cents per barrel Minimum price fluctuation is a thousandth of a penny per gallon The delivery point is the same as for our bob and that is free on board or delivered to the petroleum products terminals in new york harbor Everything else pretty much remains the same under the standardized nimex contracts