Trade in petroleum products is carried out by the Commodity and Raw Materials Exchange. Oil and petroleum products are one of the economic instruments. Indices for oil and petroleum products are determined for the derivatives market. Also, to insure risks of changes in the cost of petroleum products, settlement futures contracts are used. They are used for
- diesel fuel,
- gasoils,
- other petroleum products.
Futures contracts also help implement various arbitrage and trading strategies.
To determine oil prices on exchanges, the so-called reference grades of oil are used - Brent (oil from the North Sea, up to 70% of exported types), WTI (West Texas, for a long time remained the only marker unit), DubaiCrude (for the Persian Gulf countries).
Trading on the oil products exchange
Trading is held on the St. Petersburg International Commodity Exchange - St. Petersburg International Commodity and Raw Materials Exchange. On the main page of the official website spimex.com you can find all the values of oil indices - including national ones and for the European part of Russia. Index values can be found for the previous period and a specific date by setting the unit of measurement (for example, rubles per ton). Index values for different types of fuel (Regular-92, Premium-95, diesel fuel, including interseasonal, winter, summer, vehicle and fuel oil) are displayed in absolute values, with a percentage display (index change). There is data on the total volume in tons and the number of transactions completed. At the end of September, the trading volume on this exchange was more than 50 thousand tons.
Interesting fact: since August 8, 2014, prices for oil and petroleum products have been closed from viewing on the MICEX (Moscow Exchange) website - “for organizational reasons.” At the moment, only data on futures rates can be found. You can find out trading data and price indices by phone or by e-mail - in the department of indices and stock exchange information.
Exchange price indices for petroleum products
Petroleum product price indices are always calculated based on which contracts were concluded during exchange trading on a given market. Exchange trading is carried out on the basis of supply of petroleum products from the largest oil refineries in Russia and the world. All trader calculation methods are available. Some indices can be calculated using over-the-counter analogues. However, the methods for calculating key indices are approximately the same. They are built on the same principle: if an oil refinery takes part in the calculation of the stock exchange index, then it is also present in the calculation of the index outside the stock exchange. You can monitor prices using SPbMTSB.
Purchase and sale of petroleum products and fuels and lubricants
On the exchanges of petroleum products and fuels and lubricants, the following is purchased and sold:
- Various types of petroleum products - since 2008.
- Futures for petroleum products - since 2010.
- Crude oil – since 2013.
- Gaza and forests - since 2014.
Buying and selling other goods is also available. It is worth noting that in 2014 alone, more than 17 million tons of petroleum products, as well as goods that were created on the basis of gas and oil, were sold on the exchange. SPIMEX calculates price indices of the domestic petroleum products market based on indicators of over-the-counter contracts, as well as exchange contracts. For futures contracts on the derivatives market, SPIMEX has been the underlying asset for four years.
Electronic exchange trading of petroleum products - Gazprom Neft PJSC
Gazprom Neft PJSC today actively supports the development of exchange trading in petroleum products in the Russian Federation. Exchange sales, in the opinion of the company’s management, allow us to achieve the most transparent pricing for petroleum products. In addition, the exchange can become a fairly powerful sales channel for products. In terms of exchange sales volumes, Gazprom Neft PJSC is guided by the recommendations of the Ministry of Energy of the Russian Federation and the Federal Antimonopoly Service.
PJSC Gazprom Neft is one of the co-founders of SPbMTSB. The company's petroleum products have been put up for exchange trading since the end of 2009. Already in 2014, the company confidently became one of the three leading Russian oil companies in terms of trading volumes on the stock exchange. On average, Gazprom Neft PJSC increases exchange sales indicators within 10% per year.
St. Petersburg International Commodity and Raw Materials Exchange
The St. Petersburg International Commodity and Raw Materials Exchange (SPbMTSE) has exchange license No. 077-004. It was founded in the fall of 2013 by the Service of the Central Bank of the Russian Federation, specializing in financial markets. Trading participants are provided with high-quality clearing services, which are provided by RDK CJSC. The founders of SPIMEX are such companies as Gazprom Neft, Transnefteproduct, Zarubezhneft, Rosneft, Transneft, Surgutneftegaz, as well as Russian Railways, Jester, VTB-Invest, Sovcomflot and etc. The exchange specializes in organizing commodity exchange trading in the markets of oil, gas, petroleum products, timber, building materials, energy, and futures contracts.
The largest exchanges in the world
Mainly on the world stage, petroleum products are traded on such international exchanges as:
- New York Mercantile Exchange. This trading platform was founded in 1972. Currently it is the largest commodity exchange in the world. The platform ranks first in international trading in oil futures trading.
- London International Petroleum Exchange. The trading platform appeared on the world stage in the early 80s of the last century.
- Singapore SGX Exchange. This trading platform was created through the merger of the Singapore Currency Exchange and the Singapore Stock Exchange. Trading here is carried out only electronically.
Exchanges in Russia
Of course, if we compare Russian commodity exchanges with the trading leaders in this area, our trading platforms will seem very young. On the other hand, the Moscow Interbank Currency Exchange (MICEX) and the St. Petersburg International Commodity and Raw Materials Exchange (SPIMEX), which trade on the Russian market, are actively gaining momentum in the petroleum products trading market. The main tasks that stock exchanges in Russia set for themselves are to organize a goods market in which the formation of prices for petroleum products, oil, gas and other types of raw materials would be as simple and transparent as possible. In the Russian arena, SPIMEX is the undisputed leader. It sells not only petroleum products, but also various energy resources, agricultural products, and timber.
History of exchange trading in raw materials in Russia
Did you know that the first exchange on which raw materials were traded appeared in Russia under Peter the Great? It was this ruler who opened the commodity and raw materials exchange in St. Petersburg in 1703. Russia also had its own building in which the stock exchange functioned and hours were set for stock exchange meetings. For several decades, the trading platform was practically inactive, since the country's economic system did not allow for exchange trading. And only in the 20s of the 19th century, when State bonds appeared in circulation in Russia, the commodity exchange began to gradually develop. In 1839, a commodity exchange was also opened in Moscow, and in 1848 - in Nizhny Novgorod. The emergence of exchanges in other cities of the imperial state was facilitated by the reforms of 1861, which gave rise to the development of market relations in the country.
Commodity market
On commodity exchanges, both futures (forward) transactions and transactions for real goods can be concluded. The result of the latter is the transfer of the goods put up at auction to the buyer, and the goods are delivered to the exchange warehouse. In other words, if a seller on an exchange offers a product, he must actually have it. The seller is obliged to deliver the goods to the buyer within the period specified in the contract. Depending on the delivery time, all transactions for real goods are divided into “forward” (with delivery in the future), “cash” and “spot” (with delivery in real time). Selling a real product on the commodity market is necessary for manufacturers who are interested in selling their own goods. Consumers need to purchase goods for their subsequent use. The purchase and sale of goods on the commodity market by traders is carried out for the purpose of subsequent resale and income generation.
Due to its specific nature, working with stocks and bonds is not suitable for all traders. A certain part of the financial market players prefers more conservative and, as they say, calm assets, which are, for example, commodities, fuel, agricultural products, etc.
In view of this, commodity exchanges that provide access to trading in all these assets are quite popular today. Most often, work at such sites is carried out with oil and its products, coal, wheat, various types of metals, cotton, coffee, sugar and other assets that are in constant demand on the world market. Individuals can also participate in such trades; let's look at how to get to the commodity and raw materials exchange on the most favorable conditions for themselves and whether there are similar exchanges in Russia.
Earlier, I already told you about some trading platforms that specialize in a particular product. For example, you can find out about the London Non-Ferrous Metals Exchange, where all metals and products made from them used in production are presented. But today we will talk mainly about Russian commodity exchanges, because This is where domestic investors can expect optimal trading conditions.
Thus, the largest commodity exchange in Russia is the St. Petersburg International Commodity Exchange (SPIMEX), which concentrates almost the entire country’s oil and petroleum products market.
There are also sections dedicated to trading in natural gas, timber, building materials, chemical products and much more. You can read more about all branches of SPbMTSB, indicating the features of each of them.
All settlements on this exchange, as well as on other domestic exchanges, are carried out in rubles, which is convenient for traders who are freed from the need to purchase expensive currency to open a deposit.
The most convenient way to work with commodity exchanges, no matter whether they are domestic or foreign, is to carry out transactions on derivatives contracts (futures, options, forwards, etc.).
Such a contract does not involve physical delivery of the asset, and upon execution does not require payment of its entire value. In essence, when making payments under such a contract, the parties pay each other the difference between the purchase and sale prices.
The mechanism of working with futures and options is not as complicated as it seems at first glance, you just need to understand it. Thematic articles that you can see in the top menu of our website can help with this.
Another Russian exchange that has a platform for trading physical goods and contracts for them is the Moscow Exchange (MICEX) and its derivatives market, where contracts for URALS and BRENT oil, precious metals (platinum, gold, silver, copper), wheat are traded , corn, cotton and many other assets.
Access to the MICEX, SPIMEX, as well as foreign commodity markets such as CME ( CME Group Inc., a group of the Chicago Mercantile Exchange, approx. ed.), ICE ( Intercontinental Exchange), NYMEX ( New York Mercantile Exchange), as well as software and accounts for working with them are provided by the broker.
Working with this company, you can enter into transactions for any goods and raw materials, in any volume. Zerich is rightfully considered one of the leaders of the domestic derivatives market. In addition, everyone can get a free consultation there from an experienced specialist who will answer all questions regarding trading, opening an account, setting up a terminal and all related things.
Best regards, Nikita Mikhailov
The “commodity market” should be understood as a market in which goods, raw materials or property rights to them are traded. Today there are very few commodity exchanges where real goods are the object of purchase and sale. They are mainly concentrated in countries with poorly developed economic relations.
In developed countries, all large-scale wholesale trade in raw materials and goods is carried out using futures and options contracts. These documents record the delivery time of the goods, its quality and cost. Moreover, most transactions end not in the delivery of the purchased goods, but in the payment of the difference in prices.
Investing in commodity markets has its pros and cons. The main advantage is protection from inflation, and the main disadvantage is that there is no interest income (such as dividends from shares, etc.) and there is a credit risk (the risk of failure by the counterparty to fulfill its obligations). Having weighed all the pros and cons, experts do not recommend that beginners trade on commodity exchanges, because this requires some experience and knowledge.
How it all began?
The first commodity exchange appeared in the Belgian city of Bruges in 1409. Its peculiarity was its favorable geographical location - by the sea. This contributed to the development of maritime trade with England and turned the city into one of the centers of trade in Northern Europe. All stock exchange transactions were concluded at the Bursa Hotel, because Wholesale companies held their meetings here.
In 1460, the first organized commodity exchange was established in Antwerp. Trade operations were carried out on the square, and after 1531 - in a special building.
The Amsterdam Commodity Exchange was of great importance in the development of commodity exchanges. It was founded in 1608. Trading by samples and samples of goods was first introduced at the Amsterdam Stock Exchange. Later, average quality standards for goods were established, which made it possible to trade without presenting the products themselves to the exchange.
At the beginning of the 19th century, commodity exchanges appeared in the United States. In 1703, by decree of Peter I, the first Russian stock exchange was founded. Today there are more than 200 commodity exchanges in the world.
Features of the commodity exchange
Trading on a commodity exchange can be carried out using a “voice” in the pit or using an online platform (trading system). Trading on the exchange floor has two options:
- trade through a stock broker;
- start trading as a full-fledged exchange participant. To do this, you need a license to engage in exchange activities. A diagram of alternatives to participating in a commodity exchange is shown below.
For a novice investor, the second option (trading as a professional market player) carries great risks. The main ones are: it is necessary to obtain permission to engage in exchange activities; should have sufficient experience in trading operations; you need your own customer base.
Therefore, we will consider the option of working on the commodity exchange through an intermediary. The choice of broker and the terms they offer depends on the type of trading behavior. When trading intraday, you should contact a company that provides direct access to the “trading space”. Short-term trading can be done through an online broker.
How to choose an online broker?
Below are the key points to consider when choosing an online broker.
Regulatory activities of the broker
Different countries have their own requirements for registering and licensing online brokers, which should be taken into account when choosing one. These include the specifics of doing business, the amount of start-up capital, and requirements for protecting client capital.
It is important for a trader or investor to choose an online broker whose activities are clearly regulated. The most stringent requirements for the activities of intermediaries are in countries such as the USA (SEC, NFA), the United Kingdom (FCA), the European Union (BAFIN, MIFID, CYSEC), Japan (FSA), Australia (ASIC), Switzerland (FINMA).
Evaluation of the trading platform offered by the broker
The choice depends on the conditions in which the trader works. The first option for a trading system is a platform installed on the investor's computer, or a web platform that can be accessed from any computer connected to the Internet. It is also possible to install the trading platform on a smartphone or tablet.
It should be noted that the quality of a platform cannot be judged by its appearance and design. The key factors are reliability and functionality. If a trader carries out hundreds of trades a day, then the trading platform must be reliable, stable with minimal latency and an expanded set of tools. For a trader focused on long-term transactions, the above features of the platform are not important. He needs to have access to deep sector analytics, a built-in scanner of product market positions and logarithmic graphs.
Type of customer support
The task of the customer support service is to provide service assistance in case of any difficulties encountered by the trader, which relate to software, payments, bonuses, etc. The broker must have a professional customer support team ready to quickly respond to requests in a language understandable to the trader.
Account type
The broker can offer the client different types of accounts to choose from: micro, mini, standard, professional. It all depends on the amount of money that the future trader is ready to deposit. When opening professional accounts, the client can receive, as a bonus, lower spreads, increased bonuses or premium services, professional trading tools.
Additional information about the broker
Additional information when choosing a broker includes: the clearing company through which the brokerage firm operates; how client orders are routed; quality of reviews about the company. The resources of the NASDAQ website provide coordinates by which you can find out, for example, whether there have been negative moments in the history of a particular company.
Organization of trading operations on the commodity exchange
All trading on the commodity exchange is carried out on the exchange floor. It is divided into sections where transactions with a certain type of product are carried out. The place where transactions are made is called the trading pit, pit, ring or trading ring. In the pit among the brokers and traders (dealers) there is only a clerk - a price recorder. He has a walkie-talkie, and whenever the contract price changes, he is required to report it on the walkie-talkie.
The new price is entered into the computer system and then appears on an electronic board reflecting the progress of trade in this product. Transaction participants must remind the accountant about the last price, otherwise the transaction will be cancelled. The average closing price is calculated from trades that take place in the last 30 seconds of trading at the end of the day. Many international exchanges use exchange trading technology developed by the Chicago Exchanges, called Globex.
What is Globex?
Globex (Global Exchange) is an electronic trading platform whose main purpose is to trade various types of contracts for the supply of goods. Essentially, Globex is an automated matching system for orders to buy or sell a commodity.
Key features of the Globex platform:
- users enter their buy and sell orders into a central database;
- information about supply and demand is distributed among all market participants;
- the system analyzes matching, or “paired,” orders that are suitable for executing a trade, based on price, volume, credit and other rules in force in the market;
- after the transaction is concluded, information about completed orders is sent back to those terminals from which these orders were received. Unexecuted orders remain in the system until they are executed or withdrawn.
- after a transaction is completed in the system, all sellers participating in the trade are sent information about the current current price at which the product was sold, and data on the quantity of the product, as well as the latest current information about the best purchase and offer prices indicating the quantity of the product .
- After confirmation of the transaction, a report on it is sent to the clearing house, where clearing is carried out (carrying out netting of obligations).
- in the clearing house, in accordance with the results of the transaction, changes are made to the accounts of the seller and buyer.
The main advantage of the Globex platform is the ability to conduct trading operations at any time of the day. Brokers may trade during hours when the regular exchange is closed. Another advantage is distance and mobility. The broker does not need to be personally present at the auction; he can be located almost anywhere in the world. An additional advantage of the Globex system is low operating costs.
However, there are disadvantages to using Globex. Firstly, there is low activity and liquidity of the market at certain times of the day. Secondly, the system does not accept the command to suspend the execution of the order. There are also software flaws in the system that may arise when entering an order. Before entering a client's order, the operator must enter his current account number, indicate his status (member or non-member of the exchange), and select the payment category for the transaction. Recently, many additional order conditions have appeared that are not taken into account in the system, and this all takes up unnecessary time when entering an order.
Types of transactions in the commodity market
All transactions on the commodity market can be divided into two categories:
- transactions with real goods (take place on exchanges with poorly developed infrastructure and a limited selection of instruments);
- transactions without real goods (typical for developed countries).
The classification of transactions is presented in the figure below.
Transactions with real goods mean that the seller has the goods in stock and can present them for delivery within the time period specified in the exchange contract. The simplest transaction with a real product is considered cash transaction. In it, the goods are transferred from one transaction partner to another on the terms specified in the contract and are paid for at the time they become the property of the buyer. In this case, the seller must deliver the goods to the exchange warehouse and receive a special warehouse certificate - a warrant. The warrant is transferred to the buyer after the transaction is concluded. According to it, he receives goods from the exchange warehouse. With this type of transaction, the delivery time of goods from the warehouse to the buyer can be from 1 to 15 days.
The next type of transactions with real goods are considered forward transactions. This is a transaction in which the goods are transferred by the selling organization into the ownership of the recipient organization on the terms of delivery agreed upon by the parties at a future date established by the contract.
Conditional transactions– these are agreements, upon conclusion of which the broker must fulfill certain instructions of the client. Most often, in conditional transactions, the client gives instructions to sell a real product subject to the simultaneous purchase of another real product for him.
Barter transactions- these are agreements for commodity exchange transactions with the transfer of ownership of goods without payment in money (exchange in kind), i.e. transactions in which a product is exchanged for a product or a product + money. Barter transactions contradict the essence of exchange trading.
In developed countries, relationships in commodity markets are “virtual” and speculative in nature. This means that most transactions end not in the delivery of the purchased goods, but in the payment of the difference in prices. The main instrument of trade is a contract, which specifies the delivery time of the goods, quality and price. In this case, the product is not physically provided and is not subject to preview.
Transactions without real goods are divided into futures and options.
Futures transactions are carried out with goods that are not available at the time of the transaction. In fact, there is an act of purchase and sale of the right to a future product. When concluding a futures transaction, the contract fixes the price of the commodity and the timing of its delivery. The peculiarity of concluding futures transactions, in contrast to contracts for real goods, is that futures transactions must be registered with the clearing house.
Futures transactions are used to insure against possible losses in the event of changes in market prices when concluding transactions for real goods. For example, in the fall a futures contract is concluded for the delivery of wheat in the summer. At the same time, at the conclusion, the price of this wheat, the volume and delivery time are fixed. In the event of a lean year, the obligations assumed in the fall will have to be fulfilled in full and at the specified cost. However, this futures can be used in trading operations.
For example, there is one month or 30 days left until delivery of wheat under a futures contract, the cash price of wheat is $2,000 per ton, and the futures contract quote on the exchange is $2,100 per ton. The difference between these prices is 5% or 60% per annum. In order to make money on such a price difference, you must: simultaneously buy cash grain at $2,000 and sell a futures contract at $2,100. After 30 days, deliver the purchased grain under the futures contract. The investor's profit will be $100, and the investment will be $2000, which is 5% or 60% per annum.
Option involves concluding a contractual obligation to buy or sell a certain type of valuables or financial rights at a price predetermined at the time of conclusion of the transaction within a certain time period.
Participants in transactions on the commodity market
Transactions involving participation in exchange trading can only be concluded through exchange intermediaries. These include:
- brokers- members of the exchange who enter into contracts for the sale and purchase of goods based on customer orders and receive a commission for their work;
- dealers- members of the exchange, professional intermediaries who act at their own expense and on their own behalf. They have their place on the stock exchange. Income is generated due to the difference between the purchase and sale prices of exchange-traded goods, as well as due to changes in the exchange rates of securities and currencies;
- traders(exchange speculators) - members of the exchange trading for themselves;
- brokers(jobbers) - exchange intermediaries who buy and sell only for themselves and at their own expense;
- operators(broker assistants) - stock exchange employees who record the conclusion of transactions in their circle;
- clerks- Exchange employees perform various duties on the trading floor of the exchange. For example, a “telephone” clerk takes orders from a company or directly from clients.
In addition, stock exchange employees are prohibited from participating in stock exchange transactions and creating their own brokerage firms, as well as using proprietary information in their own interests. In addition to clerks and operators, exchange employees include:
- employees of the settlement group of the department for organizing exchange trading - help brokers formalize the concluded transaction;
- employees of the exchange examination department (bureau) - conduct examinations of exchange goods and advise trading participants;
- employees of the legal department of the exchange - advise on the execution of concluded transactions and drawing up exchange agreements;
- assistant brokers - have the right to be present on the exchange floor, but do not have the right to enter into transactions.
Relations between exchange intermediaries and their clients are determined on the basis of a corresponding agreement, since the exchange, within the limits of its powers, can regulate their relationships, apply sanctions in the prescribed manner to exchange intermediaries who violate the rules established by it for the relationship of exchange intermediaries with their clients.
Exchange intermediaries have the right to require their clients to make guarantee contributions to their current accounts opened in settlement institutions (clearing centers), as well as to provide the rights to dispose of them on behalf of the exchange intermediary in accordance with the instructions given to him.
Bulls and bears on the commodity exchange
The bulls' strategy is to buy futures with the goal of subsequent sale and receiving a margin from the difference between the sale and purchase prices. Bulls make money by increasing prices: buying when the price of an asset is low and selling when its value has increased.
Bears have the exact opposite strategy - they make money when the value of securities falls. They lower prices in an attempt to increase supply. To do this, the “bear” opens short positions and sells, sells, until prices fall to the desired level. The difference in the cost of selling and purchasing these securities is his profit.
In strategies and on exchanges, the following features must be taken into account.
- Bears and bulls carefully analyze market sentiment. They calculate possible consequences and emerging trends. For example, if the planned publication of the annual reports of a particular company shows a decline in development, this will lead to a depreciation of the shares. The bears will take advantage of this. They will sell securities on time at a good price and then buy them back at a lower price.
- Bears and bulls actively influence market sentiment by buying or selling assets in certain volumes. Bears buy large volumes of securities at once and dump them on the market at once. This will lead to a fall in prices (bearish strategy). Bulls actively buy assets, demonstrating their undervaluation, which leads to an increase in their value (bulls strategy).
- A trader who was bullish today will benefit from bearish strategies tomorrow. However, such a trader must have great financial capabilities allowing him to play both up and down.
It should be noted that today, novice traders who adhere to growth or decline strategies are often called bulls and bears on the exchanges. For example, having bought a small number of shares on their terminal, they wait for price changes. The waiting time can last from several hours to several weeks. It is difficult for newcomers with limited capital to influence demand. They often find it difficult to change their own strategy.
What is sold on the market
Exchange commodities can be divided into two main groups:
- industrial raw materials and semi-finished products;
- agricultural and forestry products, as well as their processed products
The classification of goods is presented in detail in the diagram.
Energy resources on the commodity exchange
Today, oil is the most profitable and traded raw material. The unit of volume is the barrel, which is equal to 42 gallons or 158.988 liters. Each lot is equal to 100 barrels.
The main types of oil are Brent and WTI. Brent (eng. Brent Crude) is a reference grade (marker grade) of oil produced in the North Sea. Brent Crude oil is the world standard for oil in terms of its quality, properties and composition, which is optimal from the point of view of refining and production of petroleum products. In the USA, WTI (West Texas Intermediate) oil, which has the alternative name Light Sweet, is considered a marker grade. In the Middle East, the standard is a mixture of Dubai and Oman crude oil, called Middle East Crude. Russian Urals oil is a mixture of oil from fields in the Volga-Ural region and fields in Western Siberia. There are about 200 main types of oil.
Brent crude oil is traded on the Intercontinental Exchange (ICE) under the trading symbol B. WTI Crude Oil is traded on the NYMEX under the trading symbol CL and on the Intercontinental Exchange (ICE) under the symbol WTI.
WTI crude oil is used as a benchmark for determining the price of oil and is the primary commodity for oil futures contracts on the Chicago Mercantile Exchange.
There are several ways to trade oil.
- Futures trading. Oil futures contracts are contracts for oil purchase and sale transactions that will be completed in the future (on the contract execution date) at a currently agreed upon price. That is, it is an obligation to purchase or sell a specific volume within a specified period (for example, within three months, or six months). The cost of the transaction is determined in advance.
- According to special contracts concluded between consumers of “black gold” and factories.
Large volumes of oil are traded on two exchanges: the New York Mercantile Exchange NYMEX; London InterContinental Exchange ICE.
Less significant volumes of oil are traded on the exchanges of Tokyo, Shanghai, and Dubai.
The over-the-counter oil market, unlike the exchange market, does not have any specific location. It can be characterized as a global brokerage network within which transactions for the sale and purchase of oil are concluded.
There is a standard volume of oil traded on the exchange market, which is usually 1000 barrels per contract. There is no such standard on the over-the-counter market; trading operations are possible with any volume: one railway tank, two tankers, etc., with delivery to a selected point in the world.
The price of oil, which was formed at exchange trading, is publicly available, it is published on relevant websites and mentioned in news reports. Prices that are formed on the over-the-counter market have not received such distribution; they can be found in reports from oil pricing agencies such as Platts or Argus Media.
The price of “black gold” depends on many factors:
- First, OPEC decisions affect pricing. If at an OPEC meeting a decision is made to increase oil production, this leads to a decrease in oil prices; if a decision is made to reduce the quota for the production of “black gold,” then oil prices rise.
- Secondly, geopolitical tensions can weaken or strengthen the value of “black gold”. The rapid rise in oil prices may be caused by the threat of disruption of oil supplies due to aggravation of geopolitical relations. For example, the outbreak of hostilities in Iraq led to a rise in oil prices.
- Thirdly, weather factors play an important role in determining the cost. For example, any news about bad weather in the Gulf of Mexico or interruptions in the operation of an oil pipeline in the Middle East or North America can become a catalyst for a decrease in oil prices.
- Fourth, US inventories are directly proportional to oil prices. Oil prices are strongly influenced by reports of changes in inventories of the United States of America (the world's largest oil consumer).
- Fifthly, the exchange rate of the US dollar is one of the factors influencing the price of “black gold”. The depreciation of the dollar stimulates the growth of oil prices.
In addition to oil, other energy carriers are actively traded on commodity exchanges: Gulf Coast gasoline on NYMEX under the symbol LR, gasoline (RBOB) under the symbol RB, propane under the symbol PN, natural gas under the symbol NG, heating oil under the symbol HO.
Organization of the Petroleum Exporting Countries (OPEC) and its role
The Organization of the Petroleum Exporting Countries was founded in 1960 by twelve countries (Algeria, Ecuador, Indonesia, Iraq, Iran, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates and Venezuela). The main purpose of the association is to coordinate actions on sales volumes and setting prices for crude oil. This is possible due to the fact that OPEC controls approximately half of the world's oil trade. The oil cartel accounts for about 40% of global oil production.
For member states of the organization, a total limit (quota) on oil production has been established. This indicator is regularly adjusted depending on the price of “black gold”.
An investor should be aware that a decrease in quotas indicates an increase in prices. This is caused by a shortage of oil on the market and a decrease in production. If the quota size has not changed or increased, then the cost of “black gold” falls. This should be taken into account when choosing an investment strategy.
The website marretinvest.com and 365-invest.com contains the latest news, among which the trend of rising oil prices is often mentioned against the backdrop of declining reserves in the United States and the intention of OPEC countries to support the agreement to limit production. In such a situation, the strategy of the “bulls”—market participants who make money from rising prices—justifies itself. It would be advisable to buy oil futures and wait for them to rise. When the price of oil rises, you should sell everything and make an income from the difference in prices.
Metals on the commodity exchange
Trading precious metals is one of the popular areas around the world. Precious metals include: gold, silver, platinum, palladium.
Industry experts point to the promise of this area for beginners as an alternative form of income. The main advantages of investing in precious metals are:
- purchase of bullion;
- investments in enterprises specializing in the processing of precious metals;
- investments in companies specializing in the extraction of precious metals.
Traders can trade both real precious metals and enter into futures transactions. A feature of the latter can be considered the fictitiousness of the product (precious metal), because only 3-4% of concluded futures transactions are secured by actual delivery of the commodity.
Industrial metals are traded on the London Metal Exchange (LME) and the New York Metal Exchange. The volume of trade operations is measured in tons. Lead, tin, aluminum alloy, copper, aluminum, nickel, cobalt and molybdenum are traded on the London Metal Exchange. The Rotterdam Metal Exchange trades recycled steel.
It should be noted about the prospects of such a metal as lithium. Thus, by the end of 2017, electric vehicle manufacturers are turning lithium into a “precious commodity.” Now there is a growing demand for this type of transport, for which a powerful battery is a vital part. It is made from lithium, an alkali metal.
According to all experts, we should expect a rapid increase in demand for lithium in the next few years, which will change the entire global segment of its mining and processing. According to calculations by the analytical agency Benchmark, the cost of a ton of lithium carbonate in the period 2017-2020. will rise to 13 thousand dollars. Today, a ton of this metal is 9 thousand dollars. And the price of lithium hydroxide, which provides longer life expectancy and battery power, will increase from the current 14 thousand dollars per ton to 18 thousand dollars in the next three years .
Global lithium reserves amount to 28 million tons (equivalent to 150 million tons of lithium carbonate). In 2016, 35 thousand tons of lithium were produced. This is not enough to satisfy the growing demand for the metal. However, production volumes are now increasing. At the same time, the capacity for direct battery production is increasing. For example, Tesla has already begun construction of a specialized plant in Australia, Gigafactory 1, which will produce batteries with a total capacity of 35 GWh per year. In China, it is planned to build several factories for the production of lithium batteries with a total capacity of 120 GWh. This is enough to provide batteries for 1.5 million electric vehicles.
It has long been believed that investing in gold is a reliable way to diversify an investment portfolio. The price of gold depends on the economic and political situation in the world. For gold, the world price is set every working day. Experts say that you should buy gold when the US dollar and other major currencies are unstable. The price of gold on the market is subject to sharp fluctuations. One feature should be noted: after a prolonged fall in gold prices, they generally return to their previous level.
The gold to dollar price ratio is publicly available information and is published in the form of charts. An example is shown below:
The graph shows the dynamics of the price of gold, which in November decreases to the level of 1281.35 per ounce as of November 20, 2017. There are a large number of factors to consider when analyzing gold pricing.
- First, the demand for gold decreases if the US dollar appreciates. This is due to the fact that depositors and investors transfer their assets into a more profitable currency. Conversely, when the price of the dollar falls, gold prices rise.
- Secondly, natural disasters in major exporting countries could lead to a decrease in production. Any natural factor that can affect gold production will lead to a reduction in the supply of the precious metal.
- Third, the gold market can be extremely volatile. This depends on a huge number of factors, among which political, economic, and some social factors play an important role.
- Fourthly, the price of gold depends on many political factors. Therefore, you should learn to have a good understanding of world politics and economics.
- Fifthly, you should remember the existence of “black markets”, which also have a very strong influence on prices and quotes.
Agricultural and forestry products on the commodity exchange
Trading this group of products is an attractive sector for professional traders. The main characteristics of these exchange goods are:
- wheat, corn, soybeans, coffee, sugar, cocoa and others are available for trade;
- there is a strict work schedule - depending on the exchange on which trading is carried out;
- the contract has a certain duration;
- each asset has its own trading unit;
Trade in agricultural goods allows you to receive a relatively small but stable income. In some cases, professional and experienced traders can earn up to 50% or more per annum.
The basic principle of forecasting is to take into account yield and seasonality. The lower the yield, the higher the forecast price for the asset; the most powerful impact is caused by natural events. The price drops immediately after harvest and then begins to gradually rise. This is due to the addition of storage costs to the cost of the product.
The share of agricultural and forestry goods in exchange transactions is about 55% of the total trade volume. Although there is now a downward trend. The most popular products include trade in oilseeds and their processed products, which currently account for approximately 42% of exchange turnover. The share of grains is about 21%. The exchange turnover of livestock products (live cattle, pigs, meat, hams) is increasing.
It should be noted that the emergence of various synthetic substitutes for natural raw materials has a negative impact on the exchange turnover of textile goods.
Advantages of trading in the commodity market
An investor or trader has different alternatives to trading in different markets, but the commodity market has a number of advantages.
- Low collateral (the amount of money that will be reserved for the contract), which allows you to obtain a high rate of return on invested capital. For example, when selling stock options, the amount of security can be 10-20 times greater than the premium received. On a commodity exchange, the collateral will be approximately equal to the premium received. Those. If you sell an option on any commodity and receive a premium of $500, then the security will be on average $500-700. When trading shares, this amount will increase to $5,000-$10,000. Thus, in the commodity market, the return on invested capital is 10 times higher.
- In trading, it is possible to earn more premiums on options sold than in stock options.
- Greater liquidity in the commodity market, which is much lower in the stock options market.
- Market diversification, which is especially important when forming a market-neutral strategy, which does not care about market movements. In the commodity market, for example, gas has little in common with wheat or gold, so it is possible to find a combination of assets that will produce profits in any market condition. This mix of commodities can make an investment portfolio less sensitive to various risks.
- Market fundamentality. When trading shares, there is a risk of various unpredictable factors, for example, a sudden change in the director of the company, poor reporting, etc. They are difficult to predict and have a direct impact on your investment strategy and account. In the commodity market, everything depends on supply and demand, and their level can be affected by weather conditions, natural phenomena, etc.
Ways to invest in commodity markets
Direct investment in physical goods
An investor can buy a commodity and hold it, hoping for an increase in price. After that it will sell at a profit. It should be noted that the actual ownership of exchange-traded commodities involves great complexity and expense. For example, on the New York Mercantile Exchange the minimum lot for oil is 1000 barrels (one oil barrel is equal to 159 liters). For a private investor, storing such an amount of oil is quite difficult. Thus, investing in a physical commodity is only justified in relation to precious metals, but even then there are significant costs and risks.
Indirect investments in shares of companies extracting natural resources
This option is much more practical than the previous one, but has many disadvantages. For example, Texaco receives 2/3 of its income from the sale of petroleum products. When purchasing its shares, the investor expects profit if the price of oil rises. But in reality everything is different. Changes in Texaco stock prices depend on the state of the securities market as a whole. It should be remembered that the value of shares of oil producing companies is practically independent of oil prices. Therefore, investing in shares of oil companies does not allow you to profit from rising oil prices.
Indirect investments in commodity mutual funds (ETFs, mutual funds)
An ETF is a portfolio of stocks or assets (commodities, commodities, bonds, interest rates, currencies). Literally, this abbreviation stands for exchange traded fund. A trader can easily use them to work on the most popular and profitable markets. The price of an ETF may change throughout the trading day on the exchange. Today, exchange-traded funds are considered the most common trading instruments on US exchanges.
In the commodity markets of oil, gold, silver or natural gas, traders use the following ETFs:
- oil - USO (United States Oil Fund);
- Natural Gas – UNG (United States Natural Gas Fund);
- Gold – GLD (Gold shares);
- Silver – SLV (Silver Trust Fund).
The prospects for using an exchange-traded fund are as follows. First, buying an ETF is essentially purchasing a diversified portfolio of stocks. They are evaluated and selected by professionals, which means that the shares will consistently bring good dividends. This is especially important for long-term investors, as it eliminates the need for complex analysis of which stocks to buy. Instead, they choose a specific exchange-traded fund with a ready selection of stocks. Secondly, using an ETF means there are no management fees.
The ETF market has two levels:
- primary ETF market - the main participants are large hedge funds or investment companies that can make two transactions - initiate the issuance of ETF shares or redeem their ETF shares. The first transaction involves the exchange of securities or cash for the shares themselves. The second is the reverse operation, which involves exchanging shares (shares) of an ETF for cash or shares.
- secondary market - all individuals and legal entities can operate on it. In this market, operations of issuing and redeeming packages are not carried out, but only buying or selling is carried out by analogy with shares and other instruments. In the secondary market, only transactions for the purchase/sale of shares are carried out. This segment of the ETF does not provide the ability to issue or redeem securities.
Benefits of using ETFs:
- Operations with ETFs for a trader are similar to trading in shares or foreign exchange assets. There is no need to use the services of a broker to delve into options and futures contracts.
- When using ETFs, there is a certain set of tools that reduce the potential risk for the trader.
- ETFs have a wide range of specific commodity instruments. They have a fairly large volume, which makes it easier to exit the market in a timely and safe manner.
Market analysts point out that there are risks when using ETFs, most of which are no different from the risks of any other investment. If you choose an ETF platform poorly based on the level of risk, you can lose your entire capital. However, the main reason for unsuccessful transactions on ETF stock exchanges is the lack of awareness about the mechanism of its operation, the principles of operations and the study of potentially profitable investment objects. For beginners, when using ETFs, it is better to use the services of financial advisors, and it is better to carry out the first operations under their control.
The largest companies producing ETFs are Blackrock (iShares), Vanguard, State Street Global Advisors (SPDR).
Investing in commodity futures or options
One of the easiest ways to profit from commodity price movements is to use futures contracts. The main advantages of such operations:
- High liquidity as they are traded on major exchanges.
- Transparent pricing. Price information is instantly available to everyone.
- Security of payments through the use of clearinghouses.
- Low costs thanks to standardized, generally accepted conditions and extensive infrastructure.
- The conclusion of a contract does not imply the availability of goods or their delivery. The contract can always be closed by opening an opposing position before the delivery date.
- Purchasing a contract does not require paying its full price. It is enough to deposit a margin, which serves as a guarantee of contract execution and is about 10% of the contract value.
Market analysts note that there are disadvantages in using this investment method. These include:
- The investor is required to have good knowledge of commodity markets and technologies for working on them. You must have an account with a stock broker. The qualification requirements for investors in commodity markets are higher than in the stock market.
- If the investor is not interested in the delivery of goods, then it is necessary to monitor that before the delivery date under contracts, they are closed and new positions are opened. Such transactions can result in significant costs.
- When prices move in a direction unfavorable for the investor, the broker’s account will need to be replenished, so it is necessary to have a sufficient supply of liquidity.
Thus, for an inexperienced investor, the commodity market opens up a lot of opportunities and prospects. Despite the liquidity of commodity exchanges, purchasing commodities is simply not a realistic opportunity to make money. To do this, it is enough to choose a broker “smartly”, understand the P/E ratios of companies, and constantly analyze the reporting of enterprises and market trends. Under such conditions, everyone can achieve success.
This is an organized wholesale market where products are bought and sold in large quantities. The task of the commodity exchange as an institution is to provide conditions for concluding purchase and sale transactions through public trading.
Features of the Commodity Exchange
In addition to the fact that the object of trade on TSB is raw materials and goods, they also have other distinctive characteristics:- trading is regulated by the rules of the exchange;
- each TSB functions independently of the others;
- in developed countries, commodity exchanges are non-profit organizations;
- free pricing;
- trade is carried out only in standardized products;
- the buyer can choose any seller and vice versa;
- intermediaries (brokers, brokers) participate in trade.
Types of TSB
Commodity exchanges are classified according to a number of criteria. Depending on the type of trading, they can be:- closed;
- open.
- TSB of real goods;
- futures TSB.
- public (regulated by the state);
- with limited intervention;
- private.
TSB functions
Commodity exchanges play an important role. Their main functions include:- Streamlining the commodity and raw materials market using exchange mechanisms. TSB provides organized trading according to established rules for all players. With the help of exchange mechanisms, and specifically speculative actions, it is possible to achieve an increase in demand for products even if its actual consumption has not increased (and vice versa). This exchange pattern ensures that there is no shortage or stagnation. Sellers also have the opportunity to trade not the product itself, but contracts for it, which greatly simplifies trading and saves time and money.
- Stabilization of prices for raw materials and goods - the commodity market is subject to volatility, fluctuations in real demand and supply for products cause price fluctuations. Speculative operations on the securities market are a mechanism for stabilizing prices, as they smooth out fluctuations in supply and demand. There are also certain trading restrictions established by the rules of the exchange. They do not allow the price to go beyond certain limits.
- Improving product quality and standards. Only those sellers whose product quality meets established standards are allowed to trade on the TSB. Standards are a kind of quality guarantee, which is especially important for buyers.
- Ensuring turnover - TSB brings together sellers and buyers, thus simplifying and stimulating the exchange of goods.
- Possibility of planning - the stabilization of prices for raw materials and goods, which is provided by TSB, allows companies that act as a buyer to plan their expenses; the buyer can organize their business more efficiently.
- Dispute resolution - TSB has certain rules to which each participant is subject. In case of conflict situations, the exchange acts as an arbiter to resolve disputes.
The article contains information about the activities of the St. Petersburg International Commodity and Raw Materials Exchange. Its mode of operation, rules and course of trading, servicing brokers of St. Petersburg International Trading Exchange and available tools are described here.
Short story
For the first time, the closed joint-stock company St. Petersburg International Commodity and Raw Materials Exchange was registered in May 2008. The first trading in jet fuel and diesel fuel at St. Petersburg International Export Exchange took place on September 23, 2008.
Today, the joint-stock company St. Petersburg International Commodity and Raw Materials Exchange (JSC SPbMTSB) is one of the largest Russian commodity exchanges. The Bank of Russia Financial Markets Service issued it license No. 040-004 in November 2013.
Exchange work
The St. Petersburg Oil Products Exchange operates according to the following schedule:
From 10:45 to 11:00 – work on accumulating user requests.
From 11:00 to 13:00 - a two-way counter auction for the nomination of bids by anonymous participants in the ETS (electronic trading system).
From 14:00 to 20:00 – the process of issuing documents based on the results of the current day trading.
SPIMEX is represented by the following markets:
- petroleum products;
- index and futures trading;
- gas;
- crude oil;
- forests;
- coal;
- agricultural products, grain;
- information products.
Basic concepts of stock trading
In the market, everything depends on supply and demand. If a commodity is scarce and demand is high, prices rise. And on the contrary, if there is a surplus of goods and there is a lot of it, and demand is low, prices fall. Traders playing on the stock exchange are, as it were, intermediaries between these values.
In the bidding process, the concept of “lot” is used, showing the commodity quantity purchased or sold in one transaction.
The main indicator in the work of traders is not the amount of money earned, but the amount of money that was lost. 
The main person on the stock exchange is the broker - this is the one who receives orders from external clients. The beauty of trading is its dynamics, with the broker acting as the conductor. Very often the course of market trading becomes unstable. To make the process a little more manageable, trading exchanges have an arsenal of mechanisms and trading tools.
Delivery versus payment as a new instrument
The St. Petersburg Oil Products Exchange SPbMTSB announced a new almost revolutionary project “Delivery versus payment”, its other name is “Commodity Supply Operator”. The initiator of this approach was the FAS in order to obtain an indicator of small wholesale prices in addition to the indicators of large wholesale and retail prices. Its purpose is to speed up trade turnover at oil depots in small wholesale. 
Previously, on the commodity and raw materials exchange, according to the established procedure, it was possible to trade on a “ex-reservoir” basis or on a “pickup” basis, while the contract period was defined as (T+10), that is, the time from the conclusion of the transaction to the day of its implementation. Now, a new participant in the trading process is introduced between the seller and the buyer, called the commodity supply operator, who carries out settlements for the goods.
In real time, online payments are made through the RTK terminal and for goods through the commodity supply operator. Previously, the buyer had to first make a 100% advance payment for the product, then wait about thirty days for delivery of the purchased product. During the time that the goods were loaded, delivered, unloaded, its price on the stock exchange also did not stand still, but grew. As a result, the buyer had to pay much more than the original contract price. The St. Petersburg Petroleum Products Exchange, with its innovations in online trading, has made it possible to increase the speed of funds turnover by an order of magnitude. This provides an obvious advantage. In addition, SPbIMEX brokers provide a high guarantee of the transaction due to the fact that all payments are made through a central operator and not directly.
New schemes on the sales market
Any price is a product of the non-resistance of the parties to the transaction and during exchange trading is regulated only by the supply and demand of raw materials. An important advantage of the new electronic tool is that the operator does not have one specific supplier, there are many of them, and the position of the seller and the buyer changes quickly. At any time, the buyer can act as a seller, and the seller can act as a buyer. 
The progress of trading with the introduction of the new system makes it possible for a market participant who has a cash gap and has inventory balances, for example at an oil depot, to raise money in real time against the security of these balances using a repo scheme, which means a purchase with an obligation to resell.
Services of JSC SPbMTSB
The St. Petersburg Petroleum Products Exchange provides clients with a new service, “leveraged transactions with preliminary collateral,” which is otherwise called margin lending. Transactions with leverage significantly increase the purchasing power of participants (a multiple of the established leverage). 
Depending on the leverage, for every ruble the client is willing to invest in a product, SPbIMEX brokers add their own funds. Thus, leverage is a kind of lever for the client, applied at the right time of trading to increase his working capital. The St. Petersburg Oil Products Exchange is very loyal to customer acceptance. At a bank, a merchant may be denied a loan, but here, trading with margin leverage, in fact, he always receives it.
In this new product, employees of JSC SPbMTSB incorporated the principle of transparent pricing, based on a transport differential that is clear to all trading participants, on stock indices and on a dealer margin previously agreed upon with the client. All this forms the final price of raw materials, for example, at an oil depot. In this case, the broker’s commission is deducted from the value for the “negative balance” (the difference between the transaction value and the pre-deposited asset) in accordance with the specified leverage, which is approximately fifteen percent. To receive the goods, the buyer must pay the remaining cost. Every day, until the transaction is fully settled, brokers charge the client a commission for storage services at current prices. The price of the product does not change.
Prospects for the development of the Russian raw materials market
There will certainly be development in the raw materials sector. An action plan for the Exchange Committee for 2017 was signed with clear tasks and deadlines, which is monitored by the FAS and the Ministry of Energy. 
As part of this project, the St. Petersburg International Commodity Exchange began developing a tool for selling undrawn volumes of petroleum products for the current reporting period.
