RITC 2012 Case Package - Rotman International Trading ...

A pipeline can transport up to 10,000 barrels of crude oil at a time and costs $1100 per use. This cost is subject
to change at random times during the case. Traders will be notified of changes to pipeline costs through news
releases.
Refinery Model
Traders are able to refine crude oil to produce RBOB gasoline and heating oil. The Crude Oil Refinery (3:2:1)
converts 3 contracts (3000 barrels) of crude oil in Cushing into 2 contracts (84,000 gallons ) of RBOB gasoline
and 1 contract (42,000 gallons) of heating oil, hence the (3:2:1) specification. Each trader will be limited to
using one refinery at a time.
To refine crude oil, traders must lease refineries. The lease price covers the cost of production, additives, and
the facility. Each lease period is 2 days (60 seconds), and the refining process will take 45 seconds to
complete. Once the refinery process is complete, traders must “release” the refinery otherwise they will be
charged for another lease period of 2 days.
There is one refinery available in Cushing: CL-REFINERY.
Trading Limits and Transaction Costs
Each trader will be subject to gross and net trading limits of 500 contracts and 100 contracts respectively. The
gross trading limit reflects the sum of the absolute values of the long and short positions across all securities
and cannot exceed 500 contracts. The net trading limit reflects the sum of long and short positions such that
short positions negate any long positions and has an upper bound of 100 contracts of crude equivalent
products. Trading limits will be strictly enforced and traders will not be able to exceed them.
For example, a long position of 1 crude oil contract (1000 barrels) and a short position of 1 futures contract
(1000 barrels) results in a net limit usage of 0/100 and a gross limit usage of 2/500. Similarly, for heating oil or
RBOB gasoline, a long position of 1 contract (42,000 gallons) and short position of 1 contact result in a net
limit usage of 0/100 and a gross limit usage of 2/500.
The maximum trade size will be 30 contracts, restricting the volume of contracts transacted per trade to 30.
Transaction fees will be set at $1 per contract traded.
Position Close-Out
All positions will be marked-to-market every 30 seconds with any profits and losses reflected in the traders’
cash balance by the mark-to-market operation. Futures contracts will settle at the end of each period and be
converted into CL. The final value of CL will be based on the formula described earlier.
Crude in Alaska and NYC, and the RBOB and HO products will be valued at their last traded price.
Computerized market makers will increase the liquidity in the market towards the end of trading to ensure
the closing price cannot be manipulated.
Rotman International Trading Competition 2012
© Financial Research and Trading Lab, Rotman School of Management, U of T
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BP Canada Commodities Case