Programs

Energy Markets FIN 798-102

This course will be offered in a three-weekend format (9/18-19, 10/2-3, 10/23-24) by Louise Burke.

It will cover the structure of energy commodity and commodity futures markets; futures and options instruments; trading institutions, credit management, federal trading policy and regulation; specific energy futures markets and instruments – oil and oil products, natural gas, electricity (possibilities and problems); business use for risk management in energy supply and demand.

Louise Burke is president of J.C. Energy Inc, a private consulting firm specializing in energy markets. She served as Vice-President, Marketing for the New York Mercantile Exchange, the premier regulated energy and metals futures and options exchange. She supervised marketing and education of major energy and metals futures and options contracts. While at NYMEX, Ms. Burke supported efforts of the World Bank and the US Agency for International Development in developing free markets and hedging programs in commodity-sensitive nations.

Ms. Burke has held executive positions at Mobil Oil Canada, Alberta Energy Company, in Canada, Petroleos De Venezuela in New York City and the New York Mercantile Exchange. She teaches this course at Columbia University in New York and will be commuting to Chicago to teach at DePaul.

ENERGY MARKETS – FIN 798- S.105

Schedule: 9/18,19;10/2,3,23,24

Professor: Louise Burke, President, J.C. Energy Inc. (formerly VP, Marketing, New York Mercantile Exchange)

Office Hours: TBD

OVERVIEW

The course will cover the structure of energy commodity and commodity futures markets; futures and options instruments; trading institutions, credit management, federal trading policy and regulation; specific energy futures markets and instruments – oil and oil products, natural gas, electricity (possibilities and problems); business use for risk management in energy supply and demand.

TEXTS

Recommended only:

Yergin, D., ( 1991) The Prize, Simon & Shuster

Eichenwald, K, (2005), Conspiracy of Fools, Random House

Natenberg, Sheldon, Jeffrey M. Cohen (1994), Option Volatility and Pricing: Advanced Trading Strategies and Techniques, McGraw-Hill

Covel, Michael W. (2004), Trend Following, Prentice-Hall

GRADING & ASSIGNMENTS

Students will be graded in the trading segment on class participation (20%), a midterm (30%), and final exam (50%).

COMMODITY PRICE QUOTES and other sources of information

Spot/Cash Prices, Argus Media www.argusmediagroup.com– Platts Oilgram Price Report www.platts.com, Dow Jones, Reuters,

Futures Prices

NYMEX – www.nymex.com

ICE – www.theice.com

Energy Statistics – crude products, spot, futures, US and global. See US DOE/EIA, at www.eia.doe.gov

Wall Street Journal :. Daily market commentary in Commodities section

Session 1 (9/18/09): Structure of Energy Commodity and Futures Markets

Introductory discussion on the overall energy market and the role that institutions like futures exchanges have in the development of competitive commodity markets. Topics include the emergence of demand for price transparency, development of standards and the institutions that promote development of efficiencies in competitive markets. Standardization and contract development of futures and options contracts Establishment of liquidity and necessary requirements. Threats to the development of liquidity

Readings

U.S. Department of Energy (DOE), Energy Information Administration (EIA), “Oil Market Basics” http://www.eia.doe.gov/pub/oil_gas/petroleum/analysis_publications/ oil_market_basics/default.htm

BP, Annual Statistical Review of World Energy, 2009 www.bp.com ( search term – statistical review)

International Energy Agency (IEA), “Oil Market Report.” Monthly. www.omrpublic.iea.org

US DOE/EIA, “Short-Term Energy Outlook”(STEO)www.eia.doe.gov/steoU.S. Government monthly projections of global oil demand/ supply/prices (also has US-only nat gas/coal/electricity fore-casts).

OPEC, “Monthly Oil Market Report” http://www.opec.org/ Released between the 15^th and 20^th of each month. OPEC’s view of global oil market, with good economic growth/demand analysis.

NYMEX Energy Complex Guide (download) www.nymex.com//broch and www.theice.com

Platt’s OilGram Report/ Petroleum Argus (will be posted)

US DOE/EIA “Weekly Petroleum Status Report” (WPSR), Weekly US oil data published every Wednesday at 10.30am unless there is a holiday. “The” report for oil traders/analysts and all markets. Data on US oil demand/supply/inventories/imports by product & region. http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/ weekly_petroleum_status_report/current/txt/wpsr.html

US DOE/EIA, “This Week in Petroleum” published every Wed afternoon/early Thursday following the release of the WPSR, above. http://tonto.eia.doe.gov/oog/info/twip/twip.asp

Federal Energy Regulatory Commission ( FERC), High Natural Gas Prices: The Basics – Winter 2005-2006 Outlook ( will be posted ) www.ferc.gov

FERC – State of the Markets 2008 www.ferc.gov

Session 2 (9/19/09) : ): Structure of Energy Commodity and Futures Markets Trading cont’d – and Institutions, Federal Law and Policy, Credit Management

Discussion will continue on structure of energy futures markets, contract definitions, financial performance guarantees, industry oversight of markets, policy and the regulators that enforce them.

A description of multilateral clearinghouse and the credit provisions therein.

A discussion to compare and contrast the difference in exchange and OTC (over the counter) institutions with a focus on credit management.

Readings:

US Senate Staff Report, “The Role of Market Speculation in Rising Oil and Gas Prices,” June 27, 2006. (Will be posted)

US DOE/EIA, “Derivatives and Risk Management in the Petroleum, Natural Gas, and Electricity Indus-tries,” October 2002, http://www.eia.doe.gov/oiaf/servicerpt/derivative/index.html.

NYMEX Safeguards and Standards (download) www.nymex.com//broch

And review CFTC website: www.cftc.gov/industryoversight/htm

Platt’s OilGram Report/Petroleum Argus (will be posted)

Session 3 (10/02/09): Futures and Options Instruments – 1 (fundamentals)

This session will discuss the role of market participants, types and execution of orders and basic risk management strategies using futures and options.

Reading

NYMEX, “Introduction to Options” (download) www.nymex.com//broch_main.aspx

NYMEX “A Guide to Energy Hedging” (download)

Platt’s OilGram Report/Petroleum Argus (will be posted)

Session 4 (10/03/09): Futures and Options Instruments – 2 (petroleum)

Building on the fundamentals of futures and options, this discussion will focus on their use in oil markets. Oil market trading: oil market basics, the NYMEX and IPE crude and product exchanges. Product and crack spread futures and options.

US EIA, This Week in Petroleum www.tonto.eia.gov/oog/info/twip/twip.asp

Platt’s OilGram Report/Petroleum Argus (will be posted)

Reading

NYMEX, Crack Spread Handbook, http:www.nymex.com//broch_main.aspx

Platt’s OilGram Price Report/Argus – will be posted

Midterm: In Class Exam

Session 5 (10/23/09): Futures and Options - 3 (other crude oil contracts, natural gas, electricity)

Dubai markets, the natural gas, electricity markets and other energy- based markets.

Most risk management discussion in energy circles focus on price risk. Other risks to consider include credit, management, systems, political, operational and the always complex human factor – ethical risk.