Average Freight Rate Assessment: The weighted average of the Charter Market levels of all tankers actually trading during a particular month, expressed in points of world scale. AFRA is published by the London Tanker Brokers panel.


American Petroleum Institute

API Stats

American Petroleum Institute provided statistics on US oil stock reserves


Amsterdam/Rotterdam/Antwerp region


The simultaneous sale and purchase of similar or identical commodities in two different markets, taking advantage of differentials between the two commodity prices to make a low risk profit. Arbitrage is also known as spread.


A publication containing market information and oil prices. Argus prices are often used as an independent reference source in the pricing mechanism for oil deals. They expanded into natural gas on 1/9/95

Asking price

The asking price is the amount of money a seller wishes to receive as payment in exchange for the delivery of his commodity.


American Society for Testing Materials. This organisation is responsible for the issue of many of the standard methods used in the petroleum industry.



Where a trader buys a cargo in the knowledge that he already has a specific buyer or outlet for the cargo. Provided that the terms of the purchase are the same as those of the sale, the trading risk is small.


A market is in backwardation when at a point in time the forward price of futures is lower than the current spot price. This often reflects risks associated with supply and demand in the physical market.


Oil carrying vessel of up to 7,000 tonnes capacity.


A unit of volume measurement for crude and oil products, equal to 42 US gallons, also 6.29 bbls = 1 cubic meter.

Basis risks

Basis risks are a type of risk that is not regulated by a futures contract. There are 3 main types of basis risk: calendar (risk based on the physical date the contract expires), location (risk based on the need to transport the commodity), and quality (risk that exists because the physical commodity is of a different quality than the contract requires).


Someone who anticipates a price decline in the market.


Term used to describe an individual or company as being pessimistic. Causing, expecting or characterised by falling market prices.

Benchmark crude

One of three crude oils, West Texas Intermediate (WTI), Brent and Dubai, used as price references in the trading of oil. The crudes tend to be stable in quality and so simplify bargaining. WTI is a sweet oil produced in Texas and Oklahoma, Brent is sweet and comes from the North Sea. Dubai is heavy and sour, named after its country of origin.


A notification by the buyer that he is willing to do business on particular terms and by the seller’s acceptance, this becomes a binding agreement.

Bid price

The bid price is the amount of money the buyer offers the seller of a commodity.

Bid-ask price

The bid-ask spread is the difference between the bid price and the ask price.


Intimate mixing of various components in the preparation of a product to meet a given specification.


Crude oil from the Brent oilfield in the North Sea, probably the most actively traded crude market. A large proportion of world crude production is priced off Brent.


Someone in the international oil business, who seeks to bring two parties together to close a piece of business. Usually paid by the seller.


Someone who anticipates a price rise in the market.


Someone who anticipates a price rise in the market.

Bunker fuel

Any fuel oil or distillate fuel taken into the bunkers of ships.

Bunker fuel oil

Heavy fuel oil used in ships.



The right to buy the underlying at a specific price.


A cap gives the buyer the right, but not the obligation, to establish a paper (derivative) position as a buyer of a commodity for a specific price for a specific time period.


'Cost, Insurance and Freight' The seller must pay the costs and freight necessary to bring the goods to the named destination.


See options.


A commodity is anything a market can place a value on.


Regulations set by the SFA

Compulsory stocks

Stocks held by oil companies under government direction for strategic purposes.


A market is said to be in contango when the future prices are expected to be higher than the current spot prices. This type of market situation reflects the price of carrying the physical commodity in storage.


In any given trading month, the cash and futures markets are said to converge when the price of the near-month futures contract effectively settles at or very near the cash marker price.

Crude oil

The oil produced from an underground reservoir, after being freed of any gas which may have been dissolved in it under reservoir conditions, but before any other operation has been performed on it. In the oil industry, simply termed 'crude' or stabilised crude.


Dated brent

Brent cargoes less than 15 days away from loading. An actively traded market


Penalty for exceeding lay time conditions, i.e. the sum agreed by a charterer to be paid as damages for delay of a vessel beyond the stipulated time for loading or discharging.


Derivatives are financial instruments that derive their value from the underlying physical commodity market.


The products obtained by condensation during the fractional distillation process i.e. the gaseous fuels, naphthas, kerosene and gas oil.


Department of Energy who provide statistics on US stocks, often in contradiction to the API figures.


When stocks are reduced by demand, ‘a draw on stocks’.



Exchange of Futures for Physicals. A futures contract provision involving swapping the delivery of physical product for a futures position. An EFP occurs during the futures contract trading period.

End user

The ultimate consumer of petroleum products.


An active position in the market that places the owner at risk of financial gain or loss, as a result of movement in price of the commodity



Prices quoted to a customer that are guaranteed 'firm prices'. Alternatively, a market which is firm is one where there are more buyers than sellers.


A floor gives the buyer the right, but not the obligation, to establish a paper (derivative) position as a seller of a commodity for a specific price for a specific time period.


'Free on Board', a contract in which the buyer provides the ship and the seller provides the cargo at port of loading. Includes charges up to and including loading on ship, but excluding freight costs.

Fuel oil

The heavy distillates and residues from the oil refining process, distilling between light lubricating oil and kerosene. Uses include diesel fuel and central heating systems.


Pertinent supply and demand factors which are expected to influence specific price behaviour of commodities, especially in the longer term.

Futures (contract)

Standardized contract for the purchase or sale of a commodity which is traded for future delivery under the provisions of exchange regulations.

Futures markets

Refers to the various Futures Exchange Markets and "Over the Counter" markets where hedging can be accomplished.


Gas oil

The middle distillates, having viscosities and distillation range intermediate between those of kerosene and light lubricating oil. Suitable gas oils are also used as fuels for high speed diesel engines (automotive).


A refined petroleum distillate, normally boiling within the limits of 30-200°C and suitable for use as a fuel in spark-ignited internal-combustion engines. It is the normal terms used in the USA to denote motor spirit (motor gasoline, mogas or just 'gas'). In the UK 'gasoline' normally denotes a petroleum spirit of distillation range 30-100°C. It is also known as petrol or motor spirit.


Heavy Crude

Crude oil with a high specific gravity and low API gravity due to the presence of a high proportion of heavy hydrocarbon fractions.


Hedgers are entities with a physical market position that use the market to reduce risk.


A way of limiting your exposure to a volatile risk, 'hedging your exposure to the volatile fuel price' using the future markets. I.e. a company with a future oil requirement may buy futures to protect against a rise in prices.



A verbal or written advice by a seller to a customer that he has goods to sell in approximate terms. The term also applies for a prospective buyer.


'International Petroleum Exchange'. The governing body for the London petroleum futures markets.


Light crude

Crude oil with a low specific gravity and high API gravity due to the presence of a high proportion of light hydrocarbon fractions.


A market is said to be 'liquid' when it has a high level of trading activity, allowing buying and selling of commodities with minimum price disturbance.

Liquidity risk

Liquidity risk is the risk that a transaction cannot be conducted at a representative, fair market price due to insufficient market activity, or market participants, or both.


The market position of a person who has bought a commodity and not yet sold it. Unless he sells it he will have to accept delivery at some time in the future. When a fuel oil market has excess product it is 'long on fuel oil'.


A defined quantity of a traded futures commodity (standard unit of trading). On the IPE exchange 1 lot = 1000 bbl (Brent Barrels) and 1 lot of Gas oil = 100 tonnes.



The process of re-determining the market value of all open active futures and cash market positions (costs, revenues) daily.

Marker crudes

Benchmark grade crudes are the crudes off which other crudes price in their area. For example, crudes produced in the North Sea or destined for European refineries are priced off Brent and are invariably quoted at a premium or discount to Brent. Similarly WTI (West Texas Intermediate) is the benchmark crude for the USA and Latin America. Dubai crude is used for Arabian Gulf crudes which are destined for the East.


When the futures contract stops trading on the exchange, it is termed "maturity".



New York Mercantile Exchange, the governing body for a number of American futures markets.                                                                                                                              



A verbal or written notification that the seller is willing to do business on particular terms. This becomes binding if accepted by the buyer.


Organization of the Petroleum Exporting Countries made up of a number of crude oil producing nations, of which the permanent members are: Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Indonesia, Libya, U.A.E., Algeria and Nigeria.


An option provides the right, but not the obligation, to buy or sell a futures contract at a predetermined price sometime in the future.


An order is given by a counterparty to a trading house to execute a deal, whether it be buy or sell, according to volumes, index, period already given, when the market reaches a specific level.



A contract to buy/sell oil which usually results in a cash settlement rather than physical oil changing hands.


A long established publication containing news, market information and spot oil prices. Prices are collected on a daily basis from all major suppliers and consumers to publish daily index numbers. (Platts Market Scan, Platt’s Bunker Wire). Platts prices are often used as an independent source in the pricing mechanism for oil deals.


A "position" is a contractual commitment whereby a party has bought (long) or sold (short) a commodity in the cash market or futures market.


The price of an option, paid up front at the time the option is traded.


The right to sell the underlying at a specific price.


Residual fuel oil

The very heavy fuel oils produced from the residues from the refining processes. They have high viscosities and are often cut back using higher boiling point, lower viscosity oils.

Rotterdam market

Historically, the Rotterdam Market grew out of the complex of oil industry facilities (storage and refineries) which developed in the Dutch port of Rotterdam. The greater volume of products handled through Rotterdam was for inland wholesalers and distributors, most of which was moved by barge. As is the case with any market, a business infrastructure - comprising of traders and brokers - soon developed and this became known as the 'Rotterdam Market'. It should be emphasised that most of the activity was in products trading and very little crude was or still is traded actually in the port of Rotterdam. Trading activity in the port of Rotterdam today is mostly confined either to barges or to the transfer of oil in tank. The reason the term 'Rotterdam Market' is still used is a hang-over from the previous system where prices were quoted at Rotterdam. The Rotterdam quotation is essentially a guide to prices in North West Europe.



Seasonality occurs when the market price changes due to any differences in demand resulting from the change in the seasons.


The settlement refers to the price at which any contract is closed upon expiry of said contract.


The market position of a futures contract seller whose sale obligates him to deliver the commodity unless he liquidates his contract by an offsetting purchase; also, the holder of a short position in a market. When a market is short of product it is 'short on fuel oil'.


Singapore Monetary Exchange.


A market where there are more sellers than buyers.

Sour crude

Crude oil with a high sulphur content.


When someone uses the futures market to make money.


Speculators have no physical market position and no use for delivery of the physical commodity. They use the futures market by investing rather than hedging with the objective of achieving profits by successfully anticipating price movements.

Spot prices

Term which describes a one-off open market cash transactions, where a commodity is purchased 'on the spot' at current market rates. Spot transactions contrast to term deals, which specify a steady supply of product over a period of time.


Spread is the simultaneous purchase of one futures contract and the sale of a different futures contract. Inter-commodity spread is when a trader uses the same contracted months but different commodities.


Levels of product held in storage.

Straight run

Fractions produced directly from crude oil by distillation but not subsequently heated, cracked or reformed. Refers to a petroleum product produced by the primary distillation of crude oil; the simple vaporization and condensation of a petroleum fraction, without the subsequent use of temperature, pressure, solvents, additives or catalysts.


A fixed price paper contract for a specific time period, quantity and grade. No physical product is associated with these deals.

Sweet crude

Crude oil with a low sulphur content.


Term price

Price which applies to an ongoing contract involving the sale of several cargoes/deliveries of product over a specific time period.


A shortage of a commodity (normally physical availability) which tends to drive the price up.


Metric tonne weighing 1000 kilograms.


The general direction of a price movement.



Ultra Large Crude Carrier, over 320,000 dwt


The source from which an option derives its value. It could be a physical commodity, security, or even another derivative.



A procedure BP uses to determine the acceptability of vessels for use in BP operations, the object being to minimise risk of spillage, damage, accidents, etc.


Very Large Crude Carrier, between 160,000 and 320,000 dwt


A market is said to be volatile when significant price movements occur suddenly and unexpectedly, irrespective of the direction of the price move, whether up or down. Such movements are normally a reflection of short term sentiment rather than longer term fundamentals.



Crude oil from West Texas - the US marker grade.