Oil Trading Glossary

Market structure

• Contango — forward prices above prompt, which pays for storage.
• Backwardation — prompt prices above forward, which rewards holding physical now.
• Crack spread — the margin between crude and the refined products made from it.
• Differential — the premium or discount of a physical grade to its benchmark.
• Benchmark — the reference price a contract settles against.
• Curve — the term structure of forward prices used for hedging and storage decisions.

Grades and quality

• Sweet / sour — low or high sulphur crude.
• Light / heavy — high or low API gravity, which drives product yield.
• Assay — the laboratory profile describing a crude's yield and impurities.
• Blend — a marketed grade combining several streams.

Contract and delivery terms

• FOB — free on board; risk and title pass at the loading port rail.
• CIF / CFR — seller arranges freight, with or without insurance, to the discharge port.
• DES / DAP — delivered at the discharge point.
• Laycan — the agreed window in which a vessel must present to load.
• Demurrage — compensation payable when loading or discharge exceeds agreed laytime.
• COA — contract of affreightment, a commitment to move a series of cargoes.
• Nomination — formal notice of vessel, cargo and dates under a contract.

Risk and settlement

• Pricing period — the days whose assessments determine the invoice price.
• Swap — a financial contract exchanging fixed for floating price exposure.
• Exposure — the unhedged position remaining after paper cover.
• Provisional invoice — billing on estimated quantity or price, trued up on final figures.