Published on September 5, 2007
PlattsAmericas Oil MOC Guidelines and Case Scenarios: Platts Americas Oil MOC Guidelines and Case Scenarios New York, July 24th 2007 Today’s Agenda: Today’s Agenda 10:00-10:15 Registration 10:15-10:20 Welcome andamp; Opening Remarks 10:20-10:55 MOC guidelines presentation, with case scenarios -- Communication -- Gapping -- Trading, Expressions of interest -- Platts standards 10:55-11:15 Question andamp; Answer Session Editorial Panel: Editorial Panel Esa_Ramasamy@platts.com, Executive Editor Global Oil Markets Asif_Ali@platts.com, New York Team Leader Light Ends Oil Markets David_Marino@platts.com, New York Team Leader Heavy Ends Oil Markets Gerald_Bueshel@platts.com, Director Americas Oil Markets and Global Crude Oil Manager News & Pricing: News andamp; Pricing Transactions Assessments Market Reports Breaking news Platts is a specialist energy publisher founded by Warren Platt nearly 100 years ago, and owned by publisher McGraw-Hill Impartial and independent Platts Global Coverage: Platts Global Coverage Calgary Mexico City Boston Beijing Boulder Houston Tokyo New York Definition of the Platts Spot Price Assessment: Definition of the Platts Spot Price Assessment 'The closing range in which a standard repeatable transaction takes place or could take place at arm’s length.' Platts Price Discovery Process: Platts Price Discovery Process Inter-active process where the market itself is the testing ground Use of real-time technology to interact with market End-of-day assessment window Values are based on ‘market-on-close’ principle Assessments reflect transactable values at 3:15 PM EST All bids/offer must be available to market at large Platts Price Discovery… contd.: Platts Price Discovery… contd. Key to any price discovery process is transparency Platts assessment process is open andamp; transparent Fixed prices and floating prices carry equal weight Assessments account for backwardation or contango Deals are subject to several tests, including repeatability Price Assessment Principles: Price Assessment Principles All price information available to the market Sufficient time to react to bids and offers All transactions must be at ‘arms-length’ Platts only uses information from credible sources Market typically defines creditworthy counterparties Market-On-Close: General Guidelines: Market-On-Close: General Guidelines Open to any credible market participant Participants need to adhere to Platts guidelines All bids/offers have to be ‘firm’ All participants must be contactable at all times during the assessment window Bid/offers via brokers are accepted Market-on-Close: The Timeline: Market-on-Close: The Timeline 2:30 pm EST: No new physical cargo bids/offers 2:45 pm EST: No new barge andamp; pipeline bids/offers 3.00 pm EST: No new derivatives/swaps bids/offers 3:13 pm EST: Final changes to physical bid/offers 3:15 pm EST: Market-On-Close. All bid/offers expire Market-on-Close: Guiding Concepts: Market-on-Close: Guiding Concepts Incrementability Bids, offers move in small steps Typically 5cts/bbl, or $1/mt, per minute Gapping Discouraged, and not used for assessment Market makers should bid, offer at reasonable levels Market-on-Close: More concepts: Market-on-Close: More concepts 'Keen' Any credible party in the market can be 'keen' on a published bid or offer—even if they are not in the window Repeatability After a deal, a market maker’s intention to bid on/offer over must be communicated immediately Bids/Offers can be withdrawn at any time if no prior interest has not been expressed The assessment window can be extended for up to 3 minutes to test bid-on/offer-over PGA400 Participation Analysis: PGA400 Participation Analysis Communication : Communication Platts accepts any reasonable method of delivery/communication for bids, offers and transactions Platts editors typically communicate with trading companies by phone or via on-line instant messaging systems Platts tries to accommodate the communication needs of its customers and will endeavor to open any additional communication channels required Slide16: Bids and offers in full are required to be submitted prior to the respective market cut-offs Deadline for submissions are 2:45:00 EST for all barge and pipeline bids/offers in the products and blendstock markets 2:30:00 EST for all cargo bids and offers 3:05:00 EST for crude oil bids and offers Communication… contd. Bids/Offer Levels and Gapping: Bids/Offer Levels and Gapping Platts tracks the market throughout the day, therefore any bids and offers off market level will not be published and not used during the assessment process Example: Gasoline barges trade at +2 cents/gal in the morning and all the way up to +4 cents/gal prior to MOC The trader wants to bid at +6 cents/gal and says the market is really tight and that he cant find product The bid will not be accepted at +6 cents/gal, unless the market fundamentals had changed between the last trade and the submission of the bid Why do we not accept the bid: Why do we not accept the bid +6 trades straight away or very close to being submitted and is then withdrawn. We have no other offers or bids during the MOC process From an assessment point of view, we know the market was strengthening all day and traded up to +4 cents/gal, BUT what we don’t know here is would there have been a seller at +4.25 cents/gal, or maybe +4.5 cents/gal, +4.75 cents/gal, +5 cents/gal……and so on We cannot accept the bid as the level between 4 and 6 cents/gal has not been tested and the jump is not justified by any market fundamentals Market Maker vs Market Taker: Market Maker vs Market Taker You do not have to submit a bid/offer to trade within the MOC process If you submit a bid/offer, and it was received by Platts in full by the respective deadline. You are a market maker and can increase the bid/lower the offer If you did not submit a bid or offer, you can lift bids/offers, re-bids/re-offers, but your offer or bid will not be posted onto page400. There is no limitation on how many times you may trade. (You are a market taker, i.e. your changes to bids/offers will not be posted on page400 and will not be considered for the assessment) Only your expressions of interest are posted on page400 Trading scenarios for submitted bids/offers: Trading scenarios for submitted bids/offers Slide21: Scenario3: Platts informs you via yahoo or you see on page400 that there is interest in your bid. Scenario4: An offer matches your bid on page400. In the above scenarios you conclude the trade and inform Platts of any re-bid. If a re-bid is not received within a timely manner then we will assume there is not one. In scenario 4 counterparties bid or offered need to have access to page400. Platts will try and pass on information via other communication methods, but during busy periods this may not be possible. Trading Scenarios… contd. Platts Global Alert (PGA) Page 400: Platts Global Alert (PGA) Page 400 MH0400 Americas 240: USGC resid: 1%S: Glencore hikes bid to $56.95/b FOB Marrerro 21Jun07/ 313 pm EDT/1913 GMT 1913 GMT: USGC resid: 1%S: Glencore hikes bid to $56.95/b FOB Marrerro or St. Rose, 45mb+/-5% buyer's option, June 28-30, 6api FPandamp;L spec 75 min ssf. 1913 GMT: USGC resid: 3%S: Tauber wants to hit Glencore bid at $53.10/ for June 29-July 1 1912 GMT: USGC resid: 3%S: Glencore Ltd hikes bids to $53.15/b FOB Hofti, 45kb +/- 5%, 3%S Platts spec 120 al/sil max, June 26/28 and June 29/July 1. 1912 GMT: USGC resid: 1%S: Glencore hikes bid to $56.90/b FOB Marrerro or St. Rose, 45mb+/-5% buyer's option, June 28-30, 6api FPandamp;L spec 75 min ssf. 1911 GMT: USAC resid: 1%S: Sempra hikes bid to $53.90/b del bss Piney Pt, 200kb Platts 1%S spec, with c/p options for all ports Notification procedure: Notification procedure The MOC system works on a first-come-first-serve basis, to give every market player the same opportunities The party to express interest via PLATTS will be the first person in the queue to trade, any subsequent interest will fall second inline and any re-bid/offer will then be passed to that party if it is at the same level In scenarios 1 and 2, if you DO NOT notify Platts of your selling interest and proceed with the deal, and a second counterparty comes to Platts and wishes to trade The bidder is obligated to conclude with the first counterparty to come to Platts Consequences of not trading…: Consequences of not trading… One the fundamentals of the market on close process is full performance on bids and offers Any counterparty which has submitted a bid/offer to Platts which has had an expression of interest through the MOC process and subsequently does not conclude a trade Platts will have an Editorial issue with that company, and will no longer accept bids or offers from that company The issue could range from the specific desk to the company globally Expressions of Interest: Expressions of Interest If you are interested in a bid, then please communicate that direct to Platts initially, then you can guarantee that you will be the first in line, considering you are the first to contact Platts. Your Expression of Interest will be posted on page400 and passed onto the counterparty. Please be clear and concise about which bid/offer you would like to take. Platts Standards: Platts Standards Standards represent what is most widely tradeable, Deals, bids and offer levels are normalized for standard terms and conditions The Platts methodology is continuously evolving to better reflect what the market trades. We liaise with market participants to change our methodology, nothing is set in stone. We will be fair and independent when setting standards, they will not please everyone, but will try and capture the majority of what trades in the market place. Price is a function of time: Price is a function of time Our assessments represent the price of any commodity at 3:15:00 EST. The most competitive bids and offers at the close will provide a floor and a ceiling to the assessment after any necessary normalization. However, the assessment could be anywhere within the range. Europe and Asia MOC close are 4.30 GMT and 4.30 local Singapore time. Normalization scenarios: Normalization scenarios We normalize bids, offers, and deals during the MOC process to align with typical market practices for timing, quality, and delivery location. This process is transparent to all in the market, and we encourage market participation and feedback in this process. First scenario: Timing Normalization : First scenario: Timing Normalization US Gulf Coast fuel oil – timing window is 4-12 days ahead of publication date, we normalize to the midpoint of that window (e.g. 8 days): BP bids for 3%S in two separate windows, starting at $50.50/barrel for 4-6 days out and $51 for 10-12 days out BP raises 4-6 days out bid to $51/barrel, trades there BP raises 10-12 days out bid to $51.50/barrel, trades there There is a contango structure in the market, and we normalize to the midpoint of the timing window – 8 days out, or $51.25/b – and the 3%S assessment reflects this as the mean We rely on the structure of the paper market in the absence of physical positions Second scenario: Quality normalization: Second scenario: Quality normalization The underlying specification basis for Platts assessments represent the typical standards for a specific commodity If someone bids or offers for a quality that falls outside of these parameters, we normalize for quality based on market consensus of value 3%S with 80 max al+si trades at $50/barrel during the MOC process As of July 1, the Platts 3%S basis is 130 max al+si, so this represents a premium quality, which market sources surveyed that day identify as a 50 cents/barrel premium Deal is normalize to $49.50/barrel Such quality 'assessments' vary from day to day depending on market conditions; they are not fixed Third Scenario: Freight/Delivery Normalization: Third Scenario: Freight/Delivery Normalization Again, the underlying Platts basis provides the standard for the delivery terms and location, and we normalize back to that standard 3%S deal delivered New Orleans trades at $50/barrel Specification basis in USGC market is FOB New Orleans Consensus among barge companies and market sources is that cross-channel freight in Port of New Orleans is 40 cents/barrel Deal normalized to $49.60/barrel The freight rates within a port, or from one location outside of the specification basis (e.g. Beaumont versus Houston) also vary from day to day Low bids and high offers: Low bids and high offers Example: Heating oil has traded in the market down to -0.50 cents/gal prior to MOC positions being submitted. An offer is submitted to Platts at +0.50 cents/gal to Platts for the MOC process. The offer at +0.50 cents/gal is lifted and is not re-offered. Does this prove that the market is at +0.50 cents/gal ? Slide33: The simple answer in NO Lifting an high offer does not prove that the market has suddenly strengthened by 1 cent/gal. As we never saw an incremental bid at -0.50, -0.25, 0.00, +0.25 and +0.50, we cannot be sure that the market was tested and if there was a seller between -0.50 to +0.50. The way to prove that the market is stronger would be to submit a bid and increase it incrementally. Low bids and high offers… contd. Normalization: Normalization Bids/offers and deals are normalized to the Platts standard specification, location, and volume for any specific commodity. This provides consistency and allows Platts to accurately reflect each commodity. Bids or offers which are deemed to be restrictive in any nature are not taken into consideration. Slide35: Example: Company A bids FOB IMTT to load a barge, 10,000 barrels on June 18th only. There are two restrictive elements to this bid, the specific terminal and the fact that they are only willing to load it on 1 day. Therefore this bid could and probably will need to be higher than other standard bids to be fulfilled. The way to bid this would be to provide a range of dates to load the barge, e.g. 17-19 and provide a location rather than the one terminal, i.e. FOB NYH Restrictive bids and offers Mechanisms for Price Discovery: Mechanisms for Price Discovery The extension, period, why we have it. To test for repeatability of any re-bid/re-offer that trades within the last few minutes of the MOC process. Why 3 minutes, otherwise we would go on forever, we have to cut-off at some point. Communication via brokers: Communication via brokers How do I communicate my trading positions? What if i am not available? YahooIM is best way to pass on trading positions, but the phone also works. You can communicate positions in advance, and you can nominate a broker as well. How do you differ from the role of a broker? We are not brokers. Please view PGA400 as a bulletin board. Assessment Specifications Guides: Assessment Specifications Guides www.platts.com: www.platts.com Questions: Questions ?