Energy Markets Test #2 Glossary

ANS

Alaskan North Slope crude oil. Began production in 1977. Includes Prudhoe Bay, Kuparak, Lisburne and Endicott. At peak produced around 1.9 MMBD. Located about 600 miles north of Valdez, Alaska. Transported along TAPS. Considered a medium grade of crude with API gravity of 31.4 and sulfur of .96 %. USWC refineries biggest buyer of ANS historically.

Drag Reducing Agent (DRA)

Chemicals that are sometimes added to oil in order to speed its flow through a pipeline. Terms of use and conditions outlines in published pipeline tariffs.

Refinery maintenance

"shut-down" for planned maintenance to refinery equipment, regeneration of catalysts, new equipment installment. Refinery "turnaround season" occurs in between winter heating and summer driving seasons. In the US, main turnaround occurs in the spring, with a smaller scale turnaround in the fall. These turnaround scheduled are "monitored" by traders and factored into the supply/demand analysis.

Mercaptans

A sulfur component found in crude oil. Mercaptans in finished products like gasoline are neutralized in a refinery unit known as a sweetener. Mercaptans used as a safety additive to normally odorless natural gas so that gas leaks can be more easily detected by consumers.

Clean Air Act

Act of 1963 was first piece of legislation passed by the federal government to reduce air pollution. CAA amended in 1967, 1970, 1977 and 1990. Major impact of 1990 was mandating reformulated gasoline (RFG) be sold year-round in areas of the US with worst pollution, called nonattainment areas. EG Los Angeles and other major metropolitan areas.

Distillation profile

Distillation profile - related to density (as measured by API gravity) and shows ratios, known as cuts, or fractions of production which crude evaporates into at various True Boiling Points (TBP) ranges and will give refineries an idea of the amount of each finished product the crude oil will yield.

Reformulated gasoline

One of the two types of gasoline sold across the US. As a result of the 1990 Clean Air Act, reformulated gasoline must be sold year round in municipal areas with the worst pollution problems (Non-attainment areas) as defined by the EPA.

Clogged pipelines

Pipelines can become clogged or constricted by wax hydrocarbon molecules, organic scale produced by bacteria and other materials. Devices called "pigs" are periodically sent through pipelines to clean the lines.

Cathodic protection for pipelines

Pipelines in use are subjected to a low voltage electric charge in order to counteract corrosion.

Mean of Platts

Platt's publishes a high and low price for several grades of oil at the end of every business day and traders will the MOP prices as their benchmark.

Trade journals - benchmark pricing

Platt's, Petroleum Argus are used to report transactions and price benchmarks.

North West Europe (NWE) - pricing

Platts and other trade journals as well as ICE have NEW pricing, often based at Rotterdam, in the Netherlands which is a trading center in Europe.

Ethane

a colorless and odorless gas at room temperature and pressure. Referred to by traders as C2 because it has two carbon atoms in its molecular structure, C2H6. Lightest of the four natural gas liquids. Used in petrochemicals.

Gathering Station

a hub servicing a number of crude oil wells. Generally, there is a large storage capacity at gathering stations.

Match Blending

a method used to blend ethanol (oxygenates) into gasoline. Use of pre-oxygenate (not conventional gasoline)gasolines which are blended by the refinery/blender such that they will meet retail specs for octane rating, RVP, only after ethanol or another oxygenate has been added.

Alkylation

a process to produce a high-octane blendstock for gasoline. Gas byproducts of cracking are combined with isobutene (C4H10) in the presence of catalysts to produce a high-octane blendstock for gasoline.

Catalytic cracking

a type of conversion process, primarily used in producing additional gasoline. Catalysts are used to create new, smaller molecules from larger molecules to make more gasoline and distillate.

Acids in Crude Oil

acids accumulate as a waste product of the biodegradation of crude oil by bacteria in a reservoir. So more acidic crudes tend to be heavier crude oils and are less valuable. Acid must be neutralized before it corrodes steel pipes used in transportation and refineries. Acid content is measured by a Total Acid Number (TAN) referred to as the Neutralization number. Most refineries are set up to crude oil with a TAN under 0.5.

Hydrogen - additional refinery process

adds hydrogen to the cracked hydrocarbon molecules. Hydrogen can be used in hydro processing, which is a refinery process to remove sulfur from products. Most refinery processes are in a NET short hydrogen position. Hydrogen is a very valuable refinery process product.

Chicago Mercantile Exchange

aka CME, which "owns" the NYMEX. CME operates GLOBEX, which a computer system where WTI trades on behalf of NYMEX. Floor trading hours tend to be the most liquid time to execute a trade, most trading volumes takes place electronically on the GLOBEX. GLOBEX electronic platform operates almost 25 hours a day from Sunday to Friday.

Time spread

aka Calendar spreads, are the differences between the price of oil in one time period versus another time period.

Federal Energy Regulatory Commission

aka FERC, regulates pipelines crossing US state lines (defined as common carriers). Common carriers must publish publicly available tariffs that apply same tariff to all of those wishing to transport oil/products on pipeline, provided they meet pipeline regulations vis-à-vis nominations, product quality, batch size, etc.

Trunkline system

aka mainlines or long-haul lines. Large diameter pipelines and generally operate in "fungible" mode.

Residual fuel

aka resid, aka fuel oil is from the bottom of the barrel, generally quite viscous and contains large amounts of sulfur. Primarily used in marine engines and power generation. May be sold by refineries for prices lower than crude feed...almost always a negative margin. May be used by refinery as a refinery fuel.

Ethanol

alcohol produced by fermenting starch-based agricultural products, principally corn in the US. Three gasohol blends used are E10, E85 and E100.

Front to back spread

also called time spreads, and defines price differential between the front of the curve and further out parts of the curve.

Basic Sediment and Water (BS&W)

catch all category for any water, dirt or junk brought up with crude. Refineries are looking for less than 1% BS&W by weight for crude oils.

Charge Capacity (of refinery)

charge capacity of feedstocks which is the term used for inputs, which may not be equal to outputs because some products may be used as refinery fuel, there is evaporation and light and heavy molecules may be combined which would result in refinery losses.

Commodity Futures Trading Commission

created in 1974 to protect the public from fraud, manipulation and abusive practices in US futures and options exchanges. Oversees NYMEX.

Conventional gasoline

default type of gasoline solid across the US. Defined by US EPA with goal to reduce vehicle emissions of toxic and smog-forming compounds.

Petroleum Administration for Defense District (PADD)

defined in WWII for the purpose of petroleum allocation when rationing for the war efforts was implemented. Stocks still broken down and reported by PADD.

Cycles (batch pipeline)

defined periods where segregated batches are accepted and scheduled for movement along a pipeline. Segregated batches use pigs to isolate specialty products from other products within the pipeline. Shipper pays additional fee for this service.

Viscosity

defines how easily a liquid resists flowing. Highly viscous crudes would require heating and other blending to increase flow, resulting in higher costs.

Smart Pig

devices which have sensors that are moved through pipelines and can detect areas of corrosion or damage which may need to be repaired.

Crack Spread

difference between crude oil input prices and finished product output prices. Also referred to as refinery margin.

Relative value spread

differential between two different, but closely related oil products from the same region. Called "diffs".

Atmospheric Distillation

distillation involves heating crude until various components, referred to a "cuts", which are the "natural" fractions for each individual crude oil. Atmospheric Distillation Unit is the tallest silver column one sees in a refinery. It is the front-end process for every refinery.

Gasoil

domestic/industrial heating with open flame burner. Used for electrical power generation. Often called home heating oil, furnace oil. Used in Northeast US, NWE, Japan and South Korea as primary residential heating oil. Price tends to correlate with diesel fuel since contains very similar hydrocarbon molecules.

Dated Brent Crude

effectively the spot market and the 21-day BFOE is the same market with loading dated yet to be specified. Dated Brent can be bought and sold, but is not sold as a paper derivative contract. It is a physical wet barrel wet contract. Buyer has legal ownership of a physical oil. Platts oil journal assessed prices at the end of each trading day based on trade of FOB cargoes of dated Brent (Forties, dated Oseberg and dated Ekofisk) loading within a 10-21 day timeframe. Cargoes loading within 10 days usually have their end user identified and are therefore not longer of value in defining market prices. Some people think of dated Brent as a short-term (up to 21-days) forward market until loading actually occurs.

Clearinghouse

entity that manages the credit of an entire exchange. "Keeper of the margins" required if a trader wishes to participate in the futures market.

Desalting

first process crude oil is put through at a refinery. Salt must be removed because it can be corrosive to refinery piping. Desalting process removes salts and other contaminants before crude is sent to settling tanks. Water is removed there before it is sent to distillation unit.

Atmospheric storage tank

fixed roof tanks used to store crude oil, bitumen, residual fuel and other non-volatile products at atmospheric pressure.

Aviation Gasoline

for use in sparkplug-ignition piston engines of light general aviation (GA) aircraft. AVGAS used only in private propeller airplanes and helicopters. Died blue in color so that private pilots can ensure they are filling with the correct fuel.

Front half of pipeline cycle

front phase of a scheduling cycle. If the cycle is 10 days long, then front half or phase would be the first 5 days of the scheduling cycle.

Paper Barrel

futures barrel, not a physical or wet barrel.

First nearby contract

futures contract in the month which is closest to expiry. Also known as front month contract or prompt contract.

Back half of pipeline cycle

generally a 10 day cycle in a products pipeline (say Colonial pipeline) is split into 2 parts, the front phase and the "back phase" or the "back half" is the last five days, or second half of that particular cycle. Product pipelines usually schedule shipments up to 30 days in advance.

Fuel Oil

generally refers to residual fuel oil. Used primarily in marine engines of oceangoing vessels and electrical power generation. Called the "ugly duckling" because it is from the bottom of the barrel remaining after the production of gasoline and middle distillates. Fuel oil is sludgy, highly viscous fuel which must be heated in order to pump through fuel systems. Contains high amounts of sulfur.

Naphtha

generic term applied to petroleum molecules with an approximate boiling range between 30°C and 200°C. Used to improve octane of gasoline, in petrochemicals such as plastics and in the production of fertilizers.

Carbon content in oil

gives an indication of a crude oil's suitability for coke production. Conradson Carbon Residue (CCR) test values between 0.5 and 1.0 are typically acceptable to refineries.

Conventional Crude oil

hydrocarbon liquid with a density between 10° - 50°API. Refineries are typically configured to optimally run crudes in the 30°- 35°API.

Heavy Fuel Oil

includes residual fuel oil, bunker (Marine) fuel, heavy (Industrial) fuel oil. See Residual fuel.

Jobber operations

independent owner/operator of gasoline stations who sells a branded gasoline (BP, Shell), flies the major's flag,. Kind of like a franchise.

Schedulers

individuals who handle pipeline nomination requests.

Feedstocks - refinery

inputs to the refinery processes. Usually crude, but can be "semi"-finished products requiring more processing in a more sophisticated refinery process.

Mid-stream activities

involves the transportation of crude oil and finished products by ship tanker, pipelines, and railcar and truck tanker.

Off spec oil

is the name given to crude oil that is not within the tight range of assay specifications and off spec crude can result in expensive delays when delivered to a refinery. Off spec oil may have to be shipped to another refinery that can accept those specifications.

Jet A

jet propulsion aircraft fuel used for US domestic commercial aircraft

Basic topping refinery

least sophisticated refinery. Topping refinery simply separates crude oil into various products by distillation process. Basic topping refinery only contains an atmospheric distillations tower. Referred to "teapot" or "tin can" refineries. Topping refineries sell semi-finished intermediate products to other refineries with excess downstream capacity.

Kerosene

light petroleum distillate burned in portable space heaters, stoves, water heaters and as a light source in wick-fed lamps. Originally most commonly produced petroleum product, replacing whale oil.

Flash point

lowest temperature at which a fuel gives off sufficient vapor to form a flammable mixture with air. An important safety measure for ships and aircraft which cannot be evacuated easily and must store large quantities of fuel. JetA1, used in jet aircraft has a flash point around 100°F (38°C).

Methane

main component of natural gas used in home heating, cooking and utility electricity generation. Used in petrochemicals in fertilizers.

Capline pipeline

major crude oil pipeline from St. James, LA to Patoka, IL (Southern Illinois hub). Operated by Shell pipeline. Undivided interest pipeline.

Cushing, OK

major hub for crude oil pipelines in the US. Where the NYMEX WTI crude oil futures contract is physically deliverable.

Blending - refining process

many finished petroleum products are the result of blending a range of hydrocarbon molecules from many different processes within the refinery. EG - a straight run gasoline does not have a high enough octane rating for modern engines, so higher octane components are blended into gasoline, such as reformates.

Reid Vapor Pressure (RVP)

measure of how easily a fuel evaporates. The more easily a fuel vaporizes, the more favorable is combustion.

Cetane Index

measure of how easily diesel fuel ignites when it is added to compression-heated air. A higher number if more desirable because the higher the cetane number, the more easily the diesel will ignite.

Total Acid Number (TAN)

measures acid content in crude oil. Highly acidic crude has a TAN > 0.7. Concerns with corrosion.

API Gravity

measures density of crude oil, relative to water. Degrees API gravity = (141.5/specific gravity) - 131.5. Water has a density of 10 ° API. Most refineries configured to use crude oil with densities in the 30°and 39.

Vapor pressure

measures how easily crude oil and other products evaporate. Reid Vapor Pressure is the measure used (in psi).

Natural Gas

methane

Refinery product slate

mix of finished and unfinished products produced at a refinery. Refinery product portfolio.

Transmix

mixture between two finished petroleum products that are not similar enough and requiring reprocessing by a refinery plant. E.G. gasoline and low sulfur diesel.

Asphalt

mixture of approximately 5% bitumen (one of the heaviest and most viscous liquid refinery products of petroleum) and 95% aggregates ( crushed stone, gravel, sand), usually sourced locally for road manufacture. Most asphalt used in North America is hot mix asphalt and requires mixed of bitumen binder at 250 - 325°F. Road work is seasonal.

Reformer

modifies naphtha, using heat, catalyst and pressure into high octane blend stocks.

Centistoke

most commonly used kinematic viscosity measurement unit for crude oil once it is removed from a reservoir. (cS or cSt).

Fluid Catalytic cracking (FCC)

refinery process which uses catalysts, low pressure, and heat. When applied to gasoil, the FCC unit creates molecules which can be used in gasoline, middle distillates and other valuable products. Often one of the largest units in a refinery and is technically very complex.

Merchant refining

refinery that doesn't have a captive downstream or guaranteed source of feedstock supply like an E & P group. A stand-alone refinery not part of an integrated distribution system.

Front month contract

same as first nearby contract

Crude Distillation Unit (CDU)

separates crude oil into different petroleum products based on differences in boiling points.

Naptha (Platts NEW benchmark)

settlement price for naphtha in NWE based on Platts Oil gram Daily journal

Batches (pipelines)

short-haul pipelines, known as stub lines or delivery lines are smaller diameter pipelines with more delivery points than long-haul pipes and usually operate in batch mode, not fungible mode which means that the shipper will receive the same molecules it tendered for shipment.

Cloud point

temperature at which wax crystals form. This is an important measure for middle distillates such as diesel which is more susceptible to clouding compared with lighter gasoline. The presence of solidified waxes thickens the oil and clogs fuel filters and injectors in engines.

Octane ratings

the most important and generally the most expensive characteristic for a refinery to produce. Octane ratings are not correlated with energy content.

Jet fuel (Platts NY Harbor - benchmark)

the price at an airport in Boston (Logan) or Washington, DC (Dulles, Reagan) may be linked to price of a benchmark jet fuel price which is assessed by Platts trade journal, based on OTC trading for delivery at NY area airports adjusted for transportation costs.

Refinery gate price

the price of crude oil going into refinery or the price of petroleum products coming out of the refinery.

Forward prices

the price of oil for delivery at a specified date in the future.

Ekofisk blend crude oil

North Sea crude oil discovered by Phillips in 1969. One of the components of BFOE benchmark crude.

Colonial pipeline

1500 miles refined products pipeline from the USGC to Linden, NJ (near NY Harbor). Products move along Colonial at 305 mph and it takes 18-20 moves to move along the whole length of Colonial. Pumps same sequence of products about every 5 days, so there are typically 6 cycles per month or 72 per year. Colonial usually schedules shipments up to 30 days in advance.

Cat cracked

Heat, pressure and a catalyst (powder, solid bead, pellet) to break hydrocarbons apart.

Light fuel oils -in petrochemicals

Heavy naphtha and light fuel oils/gasoils are commonly used in Asia as feed stocks to manufacture petrochemicals. In the US and Middle East, NGLS ethane and propane are the most commonly used feedstocks to produce petrochemicals.

Hydrotreater

Hydrotreater unit (HDT), also referred as sulfur recovery units, used to remove sulfur, particularly from kerosene and jet fuel.

Light marine fuels oils (LMFO)

ISO specifications RME-25 or RMF-25 which have different carbon, ash and vanadium content.

Kinematic Viscosity

Measures how easily a liquid resists flowing, and relies on timing oil falling due to the force of gravity through a calibrated hole in a testing device, which is called a viscometer.

Dubai Mercantile Exchange

Middle East exchange that trades OMAN crude oil. Average number of barrels traded per day is around 775,000. Contract size is 1,000 bbls.

Distillate fuel oil

Most common use is home heating oil, which is called gasoil in Europe. Also used in electrical power generation.

Heating Oil - NYMEX benchmark

NYMEX heating oil futures contract delivered at NY Harbor is benchmark diesel/middle distillate benchmark in US.

Gasoline - NYMEX benchmark

New York Mercantile Exchange gasoline futures contract for delivery at New York Harbor.

Brent Blend crude oil

North Sea benchmark crude. Combination crude is a combination of crudes from 15 different oil fields in the Brent and Ninian system. Brent's API gravity is 38.3 ° and sulfur content of 0.37%. About 2/3 of world's crude sell at prices tied to Brent. Brent is ideal for producing gasoline and middle distillates. ICE futures based on Brent.

Barrel of oil equivalent

The barrel of oil equivalent (BOE) is a unit of energy based on the approximate energy released by burning one barrel(42 U.S. gallons or 158.9873 litres) of crude oil.

Batch cutting

When different batches arrive at destination, they are pulled out of the pipeline (batch cut) into other lines or tankage through a complex set of valves. Some mixing of product occurs at the interface of adjacent product grade batches.

3:2:1 Crack Spread

also known as a refinery margin spread. Finished product prices, such as gasoline minus crude oil prices. A refiner wishing to hedge refinery margins can Sell the 3:2:1 crack spread by buying 3 crude oil contracts, selling 2 gasoline and sell 1 heating oil contracts to "lock in" a proxy for the refining margin. Crack spreads do not completely hedge the refining margin because not all products produced at refinery are covered by available futures contracts and crack spread does not include other refinery costs such as power, labor, etc.

Flat price position

also known as an outright position. This means a trader is exposed to the simple directional movement of prices up or down. Said to have "outright" price exposure.

Off-take agreement

also referred to as term supply.

Amsterdam, Rotterdam and Antwerp (ARA)

an important location for price discovery in Europe. Low water levels in the Rhine (German river) will have a temporary depressing effect on prices in ARA, causing temporary higher prices in Germany and other major inland, Rhine-dependent nations. Rotterdam a major reporting center for refined product prices.

Nelson Complexity factor

an index created by Wilbur Nelson in 1960 to originally quantify the relative costs of the components that constitute the refinery. Nelson assigned a factor of one to the primary distillation unit. All other units are rated in terms of their costs relative to the primary distillation unit also known as the atmospheric distillation unit. Basic topping = 1.0; Hydroskimming=2.0; cracking = 9.0; full conversion= 15.0

Assay

analysis of the characteristics of an individual grade of crude oil. Outlines properties of crude oil important to a refinery, particularly expected yields of various finished products, density, sulfur, acidity and viscosity.

Capacity Utilization

averages 90% in recent years in US. Optimal considered 90-95%, with 95% considered to be full capacity. Factors affecting utilization rate include scheduled maintenance, fires, mechanical breakdowns, environmental mandates, storms etc.

Hydro skimming

basic topping units, plus naphtha reformers. Reformers generate hydrogen and this can be skimmed off for use in desulfurization units as hydrotreaters. Refiners can increase the octane of gasoline with reformate and lower the sulfur of light distillate production.

Long market position

buying a futures position is going long futures and the trade will make money is prices increase.

Natural Hedge

buying long and short position in highly correlated commodities or physicals where the results in each would tend to offset each other.

Above Ground Storage Tanks

most often constructed from carbon steel painted white to reflect the suns heat and reduce evaporation. A tank's fill pipe is usually very close to the bottom of the tank to avoid a potentially dangerous static buildup from oil movements and also to reduce vapor from splashing. Tank farms, which are a "collection" of storage tanks, are often located at crude oil production sites, refineries, major pipeline hubs and marine terminals.

Intermediate Fuel Oils (IFOs)

name used for the most commonly used marine residual fuels. Bunker C or IFO 380 most commonly used.

Aromatics

occur naturally in crude oil and can be created in refinery process. Sometimes known in a group of BTX - Benzene, toluene and xylene. Used in petrochemicals.

Backwardation

occurs when the forward curve is downward sloping, that is the first nearby month price and those further out in time are lower. E.g. February futures contract is lower than January and March is lower than February.

Arbitrage Spreads

oil prices in one region minus prices for the same(similar) product in another region. Arbs are primarily a function of transportation rates between regions. E.g. Jet fuel in NY versus Rotterdam.

Olefins

one of four molecular structures found in crude oil.

Bitumen

one of the heaviest and most viscous liquid refinery products. Used in asphalt and road oil for road surfacing and roofing. Not tar or pitch which are products of coal, not oil.

Catalytic reforming

operation that produces reformate, a high-octane gasoline blending component. Reformate is also used as a feedstock in petrochemicals. A by-product of reforming is hydrogen, which is used in other refinery processes.

Coking refinery

operation that upgrades material called "bottoms" from the distillation unit into higher -value products.

Combining- refinery process

opposite of cracking (breaks down hydrocarbon molecules). Alkylation and polymerization most common. Alkylation boosts octane.

Clean product pipelines

or White Oil pipelines transport refined products such as gasoline, diesel, jet fuel from refineries to distribution centers.

Enbridge pipeline system

pipeline network that brings over 1.5 MMBD of crude from western Canada (Alberta) to the US. Mostly carries heavy crude oil produced from oil sands.

Common Carrier

pipelines crossing US state lines, regulated by the Federal Energy Regulatory Commission (FERC). Common carriers must publish publicly and apply same tariffs to all those wishing to transport oil or product on pipeline.

Black oil pipeline

pipelines that transport crude oil to refineries.

Diesel Fuels

primarily used for automobile and marine diesel engines. Higher demand in summer driving season and lower during winter.

Bunker fuel

primary fuel used by ocean-going commercial and military ships. Also called residual fuel, resid, or fuel oil. Bunkers have origin from a time when ships had coal storage bunkers. Bunkers/resid are some of the least expensive heavy oil products produced from crude oil.

Nominating a pipeline batch

process of requesting space on a pipeline and the request is handled by individuals called schedulers. Sequencing allows for multiple products to be sent along the same pipeline without any physical barrier in between.

Conversion - refinery

processes used to generate high octane blendstocks for gasoline. Conversion also used to produce petrochemicals and to reduce viscosity of heavy residual fuel oil. Sometimes referred as upgrading because refinery takes lesser value products and chemically altering them to produce higher value products. Conversion takes place downstream of distillation unit.

Apparent Demand

production less net exports for a product

Low sulfur fuel oil

recent legislation in the US and Europe to reduce the sulfur content of diesel. Sulfur is removed in a hydrotreater unit at a refinery.

Daisy Chain

refers to a series of buy and sell transactions (for example 21-day "paper" BFOE market) where the parties are unlikely to want to take physical delivery. Each participant is likely to balance out buy/sell transactions to make sure there is a net ZERO/neutral position to avoid assuming a delivery or obligation to deliver situation.

Driving Season

refers to gasoline demand increases during the summer as people drive to more outdoor activities and take vacations. Usually defined as Memorial Day until Labor Day. During summer gasoline season, refineries switch to what is referred to as max gasoline mode. Dubai crude oil - Middle East crude, benchmark.

Bottom of the barrel

refers to heaviest, tar-like products such as bitumen, which settle to the bottom of the distillation tower.

Clean-dirty spread

refers to price differential between light/sweet and heavy/sour crude oils.

Heavy bottoms

refers to the heaviest portion of the barrel, include residual fuel oils. Least desirable and cheapest of products.

Refinery turnaround

refinery maintenance.

Paper Trader

trades in futures or paper barrels, not physical or wet barrels.

Contango

upward sloping futures (or forward) price curve as one goes further into the futures. Contango usually occurs when there is too much oil around today (excess short term supply) relative to today's demand and implies there may be money to be made in storing oil and selling oil on the future curve at a higher price.

Segregated batches

use of "pigs" or other devices to isolate specialty products from other products within the pipeline. Additional fees may be paid by shipper for this service and would be used by a shipper who has zero tolerance for even minor contamination.

Cracking

use of heat, pressure or catalysts in the refining process to break large heavy hydrocarbon molecules into smaller lighter gasoline or middle distillate range molecules. Cracking processes also employed to produce petrochemicals and to reduce viscosity of heavy fuel oil.

Heavy naphtha

used as a gasoline blend stock, in fertilizer, solvents and camping lantern fuel.

Gasoils - petrochemicals

used commonly in Asia, along with heavy naphtha and other light fuel oils as feed stocks in petrochemical operations. Refinery is source of these feed stocks to petrochemical plant.

Sequencing - pipelines

used to improve efficiency of batch processing in pipeline and allows for multiple products to be moved along the same pipeline without any physical barrier.

Lube Oils

used to prevent friction between moving parts in machinery. Important for lubricating oils not to thicken at low temperatures while starting an engine on a cold day or thin out at high temperatures such as running an engine at high loads on a hot day.

Characterization (K) Factor

uses specific gravity and average boiling points to roughly characterize a crude oil as either paraffinic or aromatic in a single number. K-factor less than or equal to 10 indicates an aromatic crude. K-factor greater than 12 indicates paraffinic crude. Paraffins more valuable than aromatics.

K1 - grade of kerosene

water-clear low sulfur grade recommended for indoor use in the US.

Bull market for oil

when future prices are significantly higher than spot prices, creating a contango, indicate an expectation for rising prices, or a bullish outlook for prices.

Partial contracts (aka Partials)

where counterparties will trade smaller clip sizes. E.g. In the 21 day BFOE market, where the parcel or clip size is 600,000 barrels (called a cargo), there is an opportunity to do a smaller clip of 100,000 - 200,000 barrels. Partials can often be combined into cargoes. A clip or parcel is the term used to refer to the minimum tradable volume in all OTC markets and varies with the grade and location of oil.

Carry trade

where traders arbitrage a contango curve by building more storage and selling forward to finance the storage. Contango only exists for brief periods of time before new storage is constructed and forward curves are sold since carry trade is so simple and so easy to do.