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An Intensive 2-Week Training Course

Forecasting the Prices of Crude-Oil
Natural-Gas and Refined Products

A Financial-Economics Approach to Forecasting

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Home » Courses » Upstream Oil & Gas Training » Forecasting the Prices of Crude-Oil Natural-Gas and Refined Products

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Why Choose this Training Course?  

This 10-day two-phase Petroknowledge Training Course is concerned with one of the most important activities in the development of oil and gas business-forecasting the oil prices, as basis for planning and investment. As we have learned that oil prices are depending on many factors, and that prices simulations need to be much more stringent in order to determine the actual risk that our investment is facing.

A critical component of decision-making in the energy industry deals with the aspect of “Whither oil prices?”:  Where do we expect prices to move in the near- and distant-terms?  Participants in the Energy Industry are constantly confronted with a wide range of information regarding current and prospective prices in their industry.  Broadly, this data comes from analyses of supply-and-demand changes, geopolitical events and the financial markets, including the commodity markets.

The oil projects require lot of investment, and it takes years for the oilfield to start producing profit, therefore adequate forecasts are essential for companies to understand when and how their returns on investment will appear and how valuable will they be.

While providing the requisite background on the economics of financial commodity markets, as well as the statistical tools required to understand them, this Petroknowledge Training Course demonstrates how the financial and commodity markets provide useful information for the generation of “expected prices”, or forecast prices, in the critical areas of oil, natural-gas and refined products.  In so doing, the training course will also demonstrate the important distinction between valuation and risk/return analyses.

This Petroknowledge training course is split into two phases:


Training Objectives click here

What are the Goals?  

The objectives of this training course are to provide a comprehensive introduction to the computation and application of forecast prices in the energy industry, with a focus on the oil, natural-gas and refined products segments. Inter alia, the training course presents the basic statistical tools required to operationalize these concepts.

At the end of this Petroknowledge training course, participants will learn to:

  • Use financial models to analyze and forecast energy prices; extrapolate forward prices beyond the liquidity tenor
  • Understand the risk of and return from futures and options contracts on energy commodities
  • Manage and optimize their corporations’ energy risk exposure
  • Estimate expected returns and calculate volatility in energy prices
  • Obtain a comprehensive understanding of the financial-economics techniques used to forecast prices
  • Apply option valuation techniques to the energy markets
  • Utilize real options theory to value energy assets; use information from futures / option prices to make optimal production decisions: Optimal timing for extraction, optimal rate at which to extract oil (gas) from a field; value oil fields, pipelines and storage facilities, power plants

Target Audience click here

Who is this Training Course for?  

This Petroknowledge training course is suitable to a wide range of professionals but will greatly benefit individuals working in financial analysis, valuation, trading, risk management or quantitative analysis positions with oil and gas exploration companies; investment and commercial banking, consulting, and financial services firms in the energy sector; production and distribution companies; energy trading firms; and corporations outside the energy industry with a significant cost exposure to energy prices.

In terms of job titles, these individuals include:

  • Financial Analysts
  • Quantitative Analysts or Researchers
  • Energy Traders
  • Risk Managers
  • Commercial and Investment Bankers dealing with commodities
  • Consultants in the commodity arena
  • Government and Regulatory Officials with responsibilities for the energy sector

Training Methods click here

How will this Training Course be Presented?  

  • The training course will be presented through a combination of four methodologies
  • Clear presentation of notes with the requisite supportive analytics
  • Detailed presentation of the relevant empirical regularities / stylized facts of the energy markets
  • Presentation of several case studies designed to exemplify the application of risk-management and valuation principles
  • Interspersed in the lectures are relevant problem-sets, designed to afford participants with the opportunity to apply the principles conveyed and see their implementation
  • Dissemination to and sharing with participant’s critical spreadsheets that will permit them to address issues within the training course, as well as utilize these concepts once they have completed the course

Organisational Impact click here

From the perspective of the organization, this Petroknowledge training course conveys to critical personnel the:

  • Computation and correct uses of price forecasts applicable to the energy industry
  • Application of concepts on risk and return on energy commodities
  • Manage and optimize their corporations’ energy risk exposure
  • Apply option valuation techniques to the energy markets
  • Understanding of the key elements of information conveyed by financial markets, and how to apply these to make better business decisions

Personal Impact click here

As a means of preparing individuals for the higher managerial rungs in their organization, the skills acquired in this Petroknowledge training course include understanding the:

  • Main terminology used in the industry
  • Role of financial markets as efficient conveyors of information and assessors of risk
  • Valuation and role of futures contracts and swap agreements
  • Principles of option and derivative-claim valuation, hedging and uses
  • Necessary tools of financial-economics and statistics to forecast near and distant prices for oil, natural-gas and refined products
  • Means to utilize price forecasts to make better business decisions

Daily Agenda click here

The two phases of the training course have coordinated objectives.  Phase 1 is concerned with the basics of equity and commodity markets, using excel as a tool for modeling the pricing forecast, as well as the calculations of Interest Rates, Contracts and Option pricing.  Phase 2 is a more advanced sequel with a focus on additional influences, simulation models and current best practices in applying forecasting for oil and gas products, as well as insight of the actual way the upstream petroleum companies are planning their projects.  For maximum effect there should be an interval of approximately 3 months between the 2 phases, during which time delegates will be asked to develop ideas for discussion in a “workshop” environment.  This will ensure sharp focus on the needs of the organization as it develops its strategy for the future. 

To address these issues the training course is designed around 10 themes, with the detailed topics of each theme as follows.

PHASE 1 

Day One:  The Current State of the Equity and Commodity Markets

  • Measuring Nervousness / Uncertainty of Equity and Commodity Markets
  • The Crude-Oil Markets: The Paradox of World Crude Oil Prices
  • Complexity and Interdependence in the Oil Market
  • Upstream Petroleum Fiscal Valuation and Modelling
  • The Refining Spread and Retail Gasoline Prices
  • Refined oil products-refining capacity and throughput
  • Natural  gas
    • Physical characteristics and supply
    • Reserves and production
    • Demand determinants
    • Trade
    • Pricing

Day Two:  A Primer on the Interest-Rate Markets

  • Time and Time Value of Money-Modeling Commercial Behavior with the Economic Limit Test
  • The Brent Contract and IPE Brent Market
  • Financial Markets’ Message from Markets: Interpret Bond-market Moves in Conjunction with those in Equity Markets
  • Floating Rate Securities
  • Understanding the Fundamentals of Bond Valuation and Excel Functions for Bond Pricing
  • Bond risks, Interest-Rate Volatility and Interest Rate Risk as the Key Bond Risk
  • Duration and Convexity: Hedging Interest Rate Exposure
  • Forecasting Future Interest Rates Using
    • A financial-economics Approach
    • Practitioners' Approaches

Day Three:  Overview of Statistical Concepts, Forwards and Futures

  • Basic Statistical Concepts: Average and Volatility; Stationarity of Time Variables
  • Regression Analysis
  • Using Solver to Solve Constrained Optimization Problems
  • Amortization and Depreciation
  • Fundamentals of Forwards and Futures Contracts: Definition, Payoff Diagram, Pricing by Arbitrage
  • Forward / Futures Prices and Forecast Prices

Day Four:  Swap Contracts and Options in Energy Markets

  • Commodity Swaps
  • Payoffs and Put-Call Parity
  • Black-Scholes Formula
  • Option Sensitivities (the “Greeks”): Delta and Gamma
  • The Binomial Model and the Valuation of American-Style Options

Day Five:  Forecasting the Prices of Oil, Natural-Gas and Refined Products

  • The Market Price of Risk: Estimating a Risk Premium in Finance, and Applying it to Energy Prices
  • How Can Use Regression Analysis to Fortify Our Understanding of Financial Markets’ Perspective on Forecast Prices?
  • Where Can We Observe Forecast Prices?
  • What is the Difference between Futures Prices and Forecast Prices?
  • What is the Capital Asset Pricing Model (CAPM) and How Can We Use it to Forecast Oil Prices?
  • Applying a Jump-Diffusion Model to Oil Futures Options
  • Using the Market Price of Risk to Implement Risk-Management from a Corporate Perspective

INTERVAL BETWEEN PHASE ONE AND PHASE TWO 

PHASE 2 

Day Six: The Statistics of the Price Processes in Energy Markets 

  • Historical Volatility; The Term Structure of Volatility (TSOV)
  • Estimating Volatility from Market Prices of Options in Energy Markets
  • Historical or Implied Vols?
  • Estimating a Mean-Reverting Process
  • Characterizing the Volatility “Surface” Across Time and Strike

Day Seven: The Extrapolation in Energy Finance

  • Jump-Diffusion Process
  • Valuation of Long-Dated Real Assets and Financial Structured Products
  • Extrapolating Crude-Oil Prices
  • Extrapolating Natural-Gas Prices
  • Extrapolating the Term Structure of Volatilities (TSOV)
  • Extrapolating Correlations

Day Eight: Energy Derivative Products:  Structuring and Valuation 

  • Commercial Structured Products
  • Categorizing Derivative Products: Option Collars, Average Options, Spread Options, Swing Options, Weather Derivatives, Commodity-linked Bonds; “Swing” Options; Weather Derivatives
  • Structuring and Valuing Option Collars
  • Structuring and Valuing Average (Asian) Options

Day Nine: Energy Derivative Products:  Calibration and Hedging in Profitable Market-Making

  • Example of Calibration: Using Vanilla Options to Determine the Value of Volatility for Valuation of Average Options
  • Non-Commercial Structured Products
  • Exotic Instruments: Constant Maturity Contracts, Compound Options, Quanto Contracts

Day Ten: Geopolitical and Economic Events and Crude Oil Prices

  • Inventories, Oil Prices and Production
  • Difficulty in Planning for the Oil Safety Stock
  • API Reports
  • Oil Market Rebalancing
  • Cost Break-even Oil Prices
  • Role of Shale Oil
  • Diversification in the GCC
  • How different countries deal with the oil price changes?

Related Courses click here


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PetroKnowledge Training


Forecasting the Prices of Crude-Oil
Natural-Gas and Refined Products

A Financial-Economics Approach to Forecasting


Code Date Venue Fees



Why Choose this Training Course?  

This 10-day two-phase Petroknowledge Training Course is concerned with one of the most important activities in the development of oil and gas business-forecasting the oil prices, as basis for planning and investment. As we have learned that oil prices are depending on many factors, and that prices simulations need to be much more stringent in order to determine the actual risk that our investment is facing.

A critical component of decision-making in the energy industry deals with the aspect of “Whither oil prices?”:  Where do we expect prices to move in the near- and distant-terms?  Participants in the Energy Industry are constantly confronted with a wide range of information regarding current and prospective prices in their industry.  Broadly, this data comes from analyses of supply-and-demand changes, geopolitical events and the financial markets, including the commodity markets.

The oil projects require lot of investment, and it takes years for the oilfield to start producing profit, therefore adequate forecasts are essential for companies to understand when and how their returns on investment will appear and how valuable will they be.

While providing the requisite background on the economics of financial commodity markets, as well as the statistical tools required to understand them, this Petroknowledge Training Course demonstrates how the financial and commodity markets provide useful information for the generation of “expected prices”, or forecast prices, in the critical areas of oil, natural-gas and refined products.  In so doing, the training course will also demonstrate the important distinction between valuation and risk/return analyses.

This Petroknowledge training course is split into two phases:


Training Objectives

What are the Goals?  

The objectives of this training course are to provide a comprehensive introduction to the computation and application of forecast prices in the energy industry, with a focus on the oil, natural-gas and refined products segments. Inter alia, the training course presents the basic statistical tools required to operationalize these concepts.

At the end of this Petroknowledge training course, participants will learn to:

Target Audience

Who is this Training Course for?  

This Petroknowledge training course is suitable to a wide range of professionals but will greatly benefit individuals working in financial analysis, valuation, trading, risk management or quantitative analysis positions with oil and gas exploration companies; investment and commercial banking, consulting, and financial services firms in the energy sector; production and distribution companies; energy trading firms; and corporations outside the energy industry with a significant cost exposure to energy prices.

In terms of job titles, these individuals include:

Training Methods

How will this Training Course be Presented?  

Organisational Impact

From the perspective of the organization, this Petroknowledge training course conveys to critical personnel the:

Personal Impact

As a means of preparing individuals for the higher managerial rungs in their organization, the skills acquired in this Petroknowledge training course include understanding the:

Daily Agenda

The two phases of the training course have coordinated objectives.  Phase 1 is concerned with the basics of equity and commodity markets, using excel as a tool for modeling the pricing forecast, as well as the calculations of Interest Rates, Contracts and Option pricing.  Phase 2 is a more advanced sequel with a focus on additional influences, simulation models and current best practices in applying forecasting for oil and gas products, as well as insight of the actual way the upstream petroleum companies are planning their projects.  For maximum effect there should be an interval of approximately 3 months between the 2 phases, during which time delegates will be asked to develop ideas for discussion in a “workshop” environment.  This will ensure sharp focus on the needs of the organization as it develops its strategy for the future. 

To address these issues the training course is designed around 10 themes, with the detailed topics of each theme as follows.

PHASE 1 

Day One:  The Current State of the Equity and Commodity Markets

Day Two:  A Primer on the Interest-Rate Markets

Day Three:  Overview of Statistical Concepts, Forwards and Futures

Day Four:  Swap Contracts and Options in Energy Markets

Day Five:  Forecasting the Prices of Oil, Natural-Gas and Refined Products

INTERVAL BETWEEN PHASE ONE AND PHASE TWO 

PHASE 2 

Day Six: The Statistics of the Price Processes in Energy Markets 

Day Seven: The Extrapolation in Energy Finance

Day Eight: Energy Derivative Products:  Structuring and Valuation 

Day Nine: Energy Derivative Products:  Calibration and Hedging in Profitable Market-Making

Day Ten: Geopolitical and Economic Events and Crude Oil Prices

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© 2018. Material published by Petroknowledge shown here is copyrighted.

All rights reserved. Any unauthorized copying, distribution, use, dissemination, downloading, storing (in any medium), transmission, reproduction or reliance in whole or any part of this course outline is prohibited and will constitute an infringement of copyright.


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