In 2008, the price of crude oil on the New York Mercantile Exchange (NYMEX) hit an all-time high of $147 per barrel. While many factors led to this historic rally, the nature of futures trading and the Exchange itself made this possible. The New York Mercantile Exchange has been around since the late 1800s here in the US, and it is still the most influential financial energy commodities exchange in the world. In this lesson, we will explore the history of the Exchange, how it functions, the participants, and the commodities traded.
At the successful completion of this lesson, students should be able to:
This lesson will take us one week to complete. There are a number of required activities in this module. The chart below provides an overview of the activities for Lesson 7. For assignment details, refer to the location noted.
All assignments will be due Sunday, 11:59 p.m. Eastern Time.
REQUIREMENT | LOCATION | SUBMITTING YOUR WORK |
---|---|---|
Reading Assignment: Chapter 1&2 -Errera & Brown; Bloomberg article. | Errera & Brown, ANGEL | No submission |
Mini-Lecture: NYMEX Contracts | Mini-Lecture: NYMEX Contracts page | No submission |
Mini-Lecture: Cushing-NYMEX Crude Oil Hub | Mini-Lecture: Cushing-NYMEX Crude Oil Hub page | No submission |
Lesson 7 Activity | Lesson 7 Activity page | Blog |
Lesson 7 Quizzes 1 & 2 | Summary and Final tasks page | Submitted through ANGEL |
If you have any questions, please post them to our Questions? discussion forum (not e-mail), located under the Communicate tab in ANGEL. The TA and I will check that discussion forum daily to respond. While you are there, feel free to post your own responses if you, too, are able to help out a classmate.
Reading Assignment:
Read Chapter 1&2 Errera & Brown in preparation for this week's quizzes; Bloomberg article under "Lessons" tab, "Lesson Resources" folder in ANGEL.
The following lecture will take you through the history of the NYMEX, the type of trading that occurs ("pit" vs. electronic), the major players, the commodities traded, and futures contract specifications.
While watching the Mini-Lecture, keep in mind the following key points and questions:
The delivery point for the NYMEX Crude Oil contract is the Cushing Hub in Cushing, OK, USA. It is the world's largest crude oil storage facility and represents 16% of the US capacity. It has been in the news over the last few months as Transcanada seeks approval for its Keystone XL pipeline and, as the excess supply at Cushing looks for new outlets to the Gulf of Mexico refineries.
Key Learning Points for the Mini-Lecture: Cushing - NYMEX Crude Oil Hub
While watching the following mini-lecture, please keep in mind the following key points:
The NYMEX is actually owned by the Chicago Mercantile Exchange (CME Group). Links to their energy commodity prices (Henry Hub Natural Gas Futures) can be found in the "Resources" box. Using those links, look-up the prices for both crude oil and natural gas futures for January, 2013. State the date for which these prices were effective. Determine the "Last," "Change," and "Prior" prices, and the volumes for each and email your findings to TA Mike McCormick at mwm5342@psu.edu [1].
Now that we are familiar with the workings of the Exchange and futures contracts, we will walk through the precise steps in placing a buy or sell trade on the Exchange. The words used and timing of the process are very important to successful completion and settlement of the trades.
You have reached the end of Lesson 7. Double-check the list of requirements on the first page of this lesson to make sure you have completed all of the activities listed there before beginning the next lesson.