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Hamilton
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Joined: July 23rd, 2001, 6:25 pm

Refined Oil Products Tradeable Commodities?

September 20th, 2001, 2:55 am

Hi everyone,Had a general question regarding commodities...I've seen various references to futures traded on Nynex including refined oil products.I was curious what drives a refined oil product to become a commodity? And what volume of trade in one of these products elevates it to the status of a commodity?
 
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Aaron
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Joined: July 23rd, 2001, 3:46 pm

Refined Oil Products Tradeable Commodities?

September 21st, 2001, 1:25 pm

I think you have your casuality wrong. Nothing drives a product to become a traded commodity, most commodities are inanimate.The main refined oil products traded are home heating oil and gasoline. The reason they have their own markets is due to refining lags and bottlenecks their price does not move in sync with crude oils.Oil futures and options have always been odd because storage capacity is highly concentrated. It is dangerous to arbitrage the market unless you control tankers, storage tanks and refineries. Therefore the prices do always appear to conform to efficient markets and the trading rules make more sense from the standpoint of Exxon-Mobil than the retail speculator.
 
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Hamilton
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Joined: July 23rd, 2001, 6:25 pm

Refined Oil Products Tradeable Commodities?

September 21st, 2001, 3:03 pm

I fudged my causality to smoke out a response. Looks like it worked! Reason I ask is that while browsing Jane's website and www.stratfor.com they have been detailing the travails of the Commercial airline industry in more detail than the lay press. I remember reading awhile ago about the efforts that some airlines once went through to hedge or try and guarantee supplies of jet fuel....being a refined product I was a little unclear as to why home heating oil would be a "commodity" but jet fuel would not given the huge volumes that must be consumed world wide.Perhaps an obscure point, but thought I'd ask.
 
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gammashark
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Joined: August 10th, 2001, 12:34 am

Refined Oil Products Tradeable Commodities?

September 22nd, 2001, 3:53 pm

Jet fuel is reasonably well traded, as a physical product, directly in the form of swaps, and indirectly in the form of basis swaps with heating oil (mostly) and other products less frequently.
 
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Aaron
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Joined: July 23rd, 2001, 3:46 pm

Refined Oil Products Tradeable Commodities?

September 24th, 2001, 12:49 am

I'm hazarding a guess here, but I would say the difference is quantity. Home heating oil and gasoline are needed in such huge quantities that there are significant refining bottlenecks. My guess is that a change in demand for jet fuel could be quickly accomodated by adjusting gasoline production. That's assuming the jet fuel does not need special facilities nor long set up.
 
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gammashark
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Joined: August 10th, 2001, 12:34 am

Refined Oil Products Tradeable Commodities?

September 24th, 2001, 12:02 pm

Products aren't my specialty, but jet fuel is a not insignificant proportion of refined crude, about 8% in the US, for example. You are correct about repositioning the refineries, but to date I understood that in the US, for example, refiners were making more heating oil (pushing down heating oil prices), yet still taking less crude (pushing down crude prices - what a drop today!). This is a good example of why any processing facilities are more or less complicated spread options, and hence part of the reason for the intense interest in spread options in the energy markets