RITC 2012 Case Package - Rotman International Trading ...

Assets Description
Assets
Capacity Transport or
Conversion Period
Cost
CL-STORAGE Storage for Crude Oil Spot
in Cushing
10K Barrels N/A $500/day
AK-STORAGE Storage for Crude Oil in
Alaska
10K Barrels N/A $500/day
NYC-STORAGE Storage for Crude Oil in
New York City
10K Barrels N/A $500/day
AK-CS-PIPE Pipeline from Alaska to
Cushing
10K Barrels 1 Day (30 seconds) $40,000/use
CS-NYC-PIPE Pipeline from Cushing to 10K Barrels 1 Day (30 seconds) $20,000/use
CL-REFINERY
New York City
Crude Oil Refinery (3:2:1) 30K Barrels 1.5 Days (45
seconds)
Rotman International Trading Competition 2012
© Financial Research and Trading Lab, Rotman School of Management, U of T
$300,000 per
2 days
*Note: There are no storage requirements for the physical products: RBOB Gasoline and Heating Oil. Automatic storage at no cost
can be assumed for these products.
Traders will need to focus on four main models that interact with the physical (spot) market for crude oil: the
fundamental model, the storage model, the transport model and the refinery model. In the fundamental
model, traders will receive news releases affecting the supply of crude oil, which can be used to forecast
commodity prices. These releases will be amongst updates on geopolitical news and general economic
indicators further affecting the energy market in North America. Traders will respond to the various news
releases by buying and selling futures contracts. In the storage, transport, and refinery models, traders will
balance the costs of operation with expected returns to earn arbitrage profits. For example, based on the
refinery’s fixed cost to operate, traders can calculate when it’s profitable to purchase crude oil, convert it into
products, and sell the products. Similarly, traders can calculate when it’s profitable to purchase crude in
Alaska, transport it to Cushing, and sell crude oil spot.
Fundamental Model
The fundamental model will test the ability of traders to correctly interpret news releases and predict the
price impact on crude oil. The fundamental value of crude oil is based on two distinct factor shocks: news
effects and the weekly EIA reports. In this case, all news releases are independent of one another.
There are 8 weekly EIA reports that will be released. Each report will contain an expected storage build/draw,
and the actual storage build/draw. The fundamental value of CL will adjust at a ratio of $1 for every 10 million
barrel differential. For example, if analysts expected a 6 million barrel build, and the actual EIA value was a 16
million barrel draw, the price of CL would increase by $2.20. (expected +6, actual -16, difference +22).
19
BP Canada Commodities Case