Energy is being consumed at every hour of the day everywhere on earth. Thus, energy commodities are being bought and sold constantly to fill this demand. When we are talking about prices for the actual physical production and consumption of natural gas and crude oil, we are talking about the "cash" market. In this lesson, we will explore the ways in which cash prices are established in the physical marketplace, historical pricing, the main publications that report these prices, and the methodologies they use to collect the data.
At the successful completion of this lesson, students should be able to:
This lesson will take us one week to complete. There are a number of required activities in this module. The chart below provides an overview of the activities for this lesson. For assignment details, refer to the location noted.
All assignments will be due Sunday, 11:59 p.m. Eastern Time.
REQUIREMENT | LOCATION | SUBMITTING YOUR WORK |
---|---|---|
Lesson Quiz | Modules > Lesson 5: Energy Commodity Logistics - Crude Oil | Submitted through Canvas |
Mini-lecture: Pricing - Physical Natural Gas & Crude Oil | Mini-lecture: Pricing - Physical Natural Gas & Crude Oil page | No submission |
Lesson Activity | Lesson Activity page | Submitted through Canvas |
Fundamental Factors (on-going) | Lesson Activity page | Submitted through Canvas |
If you have any questions, please post them to our General Course Questions discussion forum (not e-mail), located under Modules in Canvas. The TA and I will check that discussion forum daily to respond. While you are there, feel free to post your own responses if you, too, are able to help out a classmate.
Even though the prices of energy "futures" influence the physical markets, prices are negotiated outside the infamous and chaotic trade floors of the exchanges. Buyers and Sellers, looking at their supply and demand situations, make pricing decisions daily and actually buy and sell the physical commodities. The results of these trades are reported in industry publications and become market indicators for the physical "cash" market.
While watching the Mini-Lecture, keep in mind the following key points and questions:
The lecture slides can be found in the Modules under Lesson 5: Energy Commodity Logistics - Crude Oil.
Familiarize yourself with one of the industry publications that reports physical, cash prices for natural gas. Inside FERC, Gas Daily and, OPIS do not allow their publications to be copied unless you have a subscription and receive prior permission. However, you can access natural gas cash prices from the Natural Gas Intelligence website [1]. These come directly from the electronic trading platform The Intercontinental Exchange (ICE). They are actual transactions for physical natural gas trades at the specified locations. ICE is based in Atlanta, GA. and they also own the ICE Futures Europe in London.
You might not be able to access the latest natural gas cash prices through NGI. In that case, use the sample prices provided in the NGI website and include a screenshot in your submission.
The cash hubs that you might see in the report are:
Please chose four of these hubs. Report the following information for the selected four hubs plus the national average (last row):
Please also include a screen shot or PDF printout of the Natural Gas Intelligence website to verify your reported prices. Do not simply submit a screen shot of the web site. You must submit both the screen shot and a typed response with your reported prices.
The Natural Gas Intelligence website is a great resource for when you work on your weekly Fundamental Factors for natural gas. You can indicate where cash prices are trading, and that may help you with your trading decisions.
This activity, due at 11:59 pm on Sunday, is worth up to 20 points on the EBF 301 grading scale.
The Fundamental Factors activity is due as usual this week, at 11:59 pm on Sunday, and is worth 30 points on the EBF 301 grading scale. Please refer to the Fundamental Factors Instructions [2] for additional information and grading rubric.
Cash Price Activity: Submit your work as a word processed document to the Lesson 5 Cash Price Activity in Canvas.
Submit your work as a single word processed document to the Lesson 5 Fundamental Factors Activity in Canvas.
While copyright laws prohibit me from reproducing copies of their reports, here are the website links so you can see the data and, in some cases, view a sample report.
Platt's Gas Daily - http://www.platts.com/IM.Platts.Content/ProductsServices/Products/gasdaily.pdf [4]
Platt's Inside FERC - http://www.platts.com/IM.Platts.Content/ProductsServices/Products/gasmarketreport.pdf [5] (pages 6 & 8)
OPIS - http://www.opisnet.com/Images/ProductSamples/NAmericanLPGReport-sample.pdf [6]
ARGUS - http://www.argusmedia.com/Crude-Oil [7]
In this lesson, we addressed the physical cash marketplace that, for the most part, deals with the "here and now." In the next lesson, we will delve into the financial "futures" markets, whereby commodity prices can be obtained for future months and years.
Log onto Canvas and complete the Lesson Quiz.
You have reached the end of this lesson. Double-check the list of requirements on the first page of this lesson to make sure you have completed all of the activities listed there before beginning the next lesson.
Links
[1] http://intelligencepress.com/features/intcx/gas/
[2] https://www.e-education.psu.edu/ebf301/680
[3] http://www.eia.gov
[4] http://www.platts.com/IM.Platts.Content/ProductsServices/Products/gasdaily.pdf
[5] http://www.platts.com/IM.Platts.Content/ProductsServices/Products/gasmarketreport.pdf
[6] http://www.opisnet.com/Images/ProductSamples/NAmericanLPGReport-sample.pdf
[7] http://www.argusmedia.com/Crude-Oil