barrels per day. Used to express crude oil production, refinery throughput capacity (i.e., capacity of the crude distillation unit), liftings, forward demand projections and crude consumption rates.

   back-month contracts are those exchange-traded derivatives contracts with the most distant delivery dates or expirations. For a suite of 12 monthly contracts, for example, the last three months might be back months. Also referred to as deferred months.

   when the price of nearer (typically prompt or spot) crude or another underlying commodity or instrument trades at a premium to the same commodity or instrument traded further forward. Also known as an inverse. see also contango

   in an electricity grid or natural gas pipeline network, the means of ensuring that supply does not outstrip demand, or vice versa.

   a membership exchange located in London for the maritime bulk freight market.

   a procedure by which excess gas that one shipper cannot use is lent to another shipper to be returned at a later date.

   a chartering arrangement whereby a vessel is contracted for without crew or provisions, and can have distinctions or implications in terms of legal responsibility relative to other types of charter arrangements.

   motored or motorless vessel used to carry oil products, often along a river. Barges vary in capacity, usually from 1,000 to 5,000 tonnes.

   standard measure of quantity for crude oil and petroleum products. Barrel, US barrel and standard barrel are all equal to 42 US gallons.

   volume of natural gas expressed in terms of its energy equivalent to oil. About 6,000 cubic feet of gas equals one barrel of oil equivalent.

   barrier options are exotic options that either come to life (are ‘knocked-in’) or are extinguished (‘knocked-out’) under conditions stipulated in the option contract. The conditions are usually defined in terms of a price level (barrier, knock-out or knock-in price) that may be reached at any time during the lifetime of the option. There are four major types of barrier options: up-and-out, up-and-in, down-and-out and down-and-in. The extinguishing or activating features of these options mean they are usually cheaper than ordinary options, making them attractive to buyers looking to avoid high premiums.

   the minimum expected customer power requirements at a given time. Baseload power is generally supplied from larger plants, which cannot be ramped up and down as quickly as peaking generation plants. As baseload demand is generally predictable and steady, it is less expensive than peak power.

   electricity-generating equipment normally operated to serve loads on an around-the-clock basis.

   the differential that exists at any time between the cash – or spot – price of a given commodity and the price of the nearest futures contract for the same (or related) commodity. The basis may reflect different time periods, product forms, qualities or locations. The cash price minus the futures price equals the basis.

   basis risk is the risk that the value of a futures contract (or an over-the-counter hedge) will not move in line with that of the underlying exposure. Alternatively, it is the risk that the cash-futures spread will widen or narrow between the times at which a hedge position is implemented and liquidated. There are various types of basis risk. For example, a heating oil wholesaler selling its product in Baltimore will be exposed to basis risk if it hedges using New York Harbor heating oil futures contracts listed by Nymex. This is a ‘locational’ basis risk. Other forms of basis risk include ‘product’ basis, arising from mismatches in type or quality of hedge and underlying (e.g., hedging jet fuel with heating oil); and ‘time’ or ‘calendar’ basis (e.g., hedging an exposure to physical prices in December with a January futures contract).

   basis swaps are used to hedge exposure to basis risk, such as locational risk or time-exposure risk. For example, a natural gas basis swap could be used to hedge a locational price risk: the seller receives from the buyer a Nymex division settlement value (usually the average of the last three days’ closing prices) plus a negotiated fixed basis, and pays the buyer the published index value of gas sold at a specified location.

   a trading strategy whereby trades are placed simultaneously in a derivative contract, normally a future, and the underlying asset. The purpose is either to cover derivatives sold or to attempt an arbitrage strategy. This arbitrage can either take advantage of an existing mispricing (in cash-and-carry arbitrage) or be based on speculation that the basis risk will change.

   an option that enables the purchaser to buy or sell a basket of commodities. The value of a basket option is dependent on both the volatility of the individual commodities and the correlation between the prices of commodities in the basket.

   a swap in which the floating leg is based on the returns on a basket of underlying commodities.

   A crude oil produced in southern Iraq that contains approximately 2% sulphur by weight with an API gravity of about 34.

   abbreviation for barrel.

   billion cubic feet (of gas).

   (UK) gas produced offshore and brought onshore to the shore/beach gas terminal, but not yet part of the national transmission system.

   a market in which the trend is for prices to decline.

   an option spread trade that reflects a bearish view on the market, usually the purchase of a put spread. see also bull spread, call spread, put spread

   synonymous with reference crude or marker crude. A crude oil whose price is used as a reference against which other crudes are priced. Because of their liquidity, the Nymex West Texas Intermediate and IntercontinentalExchange/ICE Futures’ Brent crude oil futures contracts are used as global benchmarks. Dubai crude is widely used as a benchmark for Middle Eastern crudes, especially for sale to Asian markets. see also marker crudes

   the beta (or beta co-efficient) of a rate or price is the extent to which that rate or price follows movements in the overall market. If the beta is greater than one, it is more volatile than the market; if the beta is less than one, it is less volatile.

   British Electricity Trading and Transmission Arrangements – arrangements designed to draw Scotland into the British wholesale market for trading power and create a single, integrated British-wide competitive wholesale electricity market. Betta was implemented on April 1, 2005. It gives renewable generators in Scotland better access to the Anglo-French interconnector, making it easier to sell power in continental Europe. see also new electricity trading arrangements

    see Brent, Forties, Oseberg

   a measure of market liquidity, also known as bid/offer. The bid is the price level at which buyers are willing to buy, and the ask is the price level at which sellers are willing to sell. The thinner the spread, the higher the liquidity.

   a contract directly between a consumer and a broker or supplier.

   an agreement between two counterparties to offset the value of all in-the-money contracts with all out-of-the-money contracts, resulting in a single net exposure amount owed by one counterparty to the other. see also netting, multilateral netting

   a shipowner’s receipt for its cargo, which includes cargo details, such as loading times.

    see digital option

   any model that incorporates a binomial tree, also called a binomial lattice. A binomial model describes the evolution of a random variable over a series of time steps, assigning given probabilities to a rise or fall in the variable. After the initial rise or fall, the next two branches will each have two possible outcomes, so the process will continue, building a ‘tree’ over time. The process is usually specified, so that an upward movement followed by a downward movement results in the same price, so the branches recombine. Binomial trees are of interest because they can be used to deal with American-style features; the early-exercise condition can be tested at each point in the tree.

   an alternative fuel generally blended with petroleum diesel to create a cleaner-burning biodiesel blend. A typical US blend might be 20% biodiesel to 80% petroleum.

   energy produced by the combustion of plants, vegetation or agricultural waste – for example, rice husks.

   an option-pricing model initially derived by Fischer Black and Myron Scholes in 1973 for securities options and later refined by Black in 1976 for options on futures.

   a total loss of power caused by the failure of the generation, transmission or distribution system.

   (Gas) mixing gases of different specifications to produce one within the required gas specification. (Crude) sometimes crudes are blended near source when the same storage terminal or pipeline is used. An example is Brent blend – a blend of crudes from various fields in the East Shetland Basin. Also used to create components for gasoline.

   an information service, news and media company that provides business and financial professionals with the tools and data on a single, all-inclusive platform. www.bloomberg.com

    see barrels of oil equivalent

   gas vapour that is typically produced during liquefied natural gas (LNG) ship unloading or LNG transport or storage phases as a result of heat input or pressure variations.

   the temperature at which a liquid becomes a gas.

   the total of all forward positions held by a trader or company.

   the transfer of title of a cash commodity to the buyer without a corresponding physical movement.

   caused when the flow of electricity is greater than the system capacity between two connected grids. Bottlenecks can lead to an area becoming isolated. In an exchange, this can cause attendant price imbalances between the area price and system price.

   to buy/sell mispriced options and hedge the market risk using only options, unlike the conversion or the reversal, which use futures contracts. If a certain strike put is underpriced, the trader buys the put and sells a call at the same strike, creating a synthetic short futures position. To get rid of the market risk, the trader sells another put and buys another call, but at different strike prices. see also conversion, reversal

   an options market arbitrage, in which both a bull spread and a bear spread are established for a riskless profit.

   UK Brent blend is a blend of crude oil from various fields in the East Shetland Basin between Scotland and Norway in the North Sea. The crude is landed at the Sullom Voe terminal and is used as a benchmark for the pricing of much of the world’s crude oil production. see also dated Brent

   information provider Platts’ replacement for the traditional Brent price index, intended to widen the number of crude oil grades used to determine the price of the key North Sea benchmark. It was launched in 2002 – as liquidity in Brent markets reduced, Platt’s introduced the changes to limit potential manipulation of the index.

   the amount of heat required to raise the temperature of 1lb of water by 1° Fahrenheit (technically from 60°F to 61°F). It is used to compare the heat-producing value of different fuels.

   an intermediary between traders for physical, futures and over-the-counter deals. Brokers receive a fixed commission, predetermined between the broker and his/her client.

   abandoned or unused industrial and commercial sites that may be used for redevelopment or expansion. Such use, however, may be complicated by environmental contamination.

   a partial loss of power caused by unexpectedly high demand or problems with the physical delivery of electricity. A brownout may result in lights dimming or electrical machinery slowing down.

    see British thermal unit

   the infrastructure and generating plant that generates power for a region’s wholesale power supply.

   a market in which the trend is for prices to increase.

   an option spread trade that reflects a bullish view on the market, usually the purchase of a call spread. see also bear spread, call spread

   the German Federal Cartel Office. Enforcing the ban on cartels is one of the prime functions of the Bundeskartellamt, including combating such practices as agreements between companies on the setting of prices or sales quotas and market sharing. www.bundeskartellamt.de

   the German Federal Network Agency for electricity, gas, telecommunications, post and railway, headquartered in Bonn, provides for the further development of the electricity, gas, telecommunications and postal markets and, since 2006, also of the railway infrastructure market. In order to implement effective regulations, the agency has the authority to obtain information and conduct investigations, as well as the right to impose graded sanctions: www.bundesnetzagentur.de

   a derivative contract that combines two or more commodities to manage a number of related risks. For example, coal for power linked to pollution credits, where the contract compensates the coal user for any extra charges arising from the coal containing more than a certain level of sulphur. The counterparties to a deal agree to settle any differences between the delivered sulphur content of the coal and an agreed benchmark in emission allowances. The coal user is paid when the sulphur content is above the benchmark and pays out when it is below.

   a combined charge for the provision of two or more services – e.g., gas transportation and storage, or electricity generation and transmission.

   two or more electricity or gas services provided at a combined charge – e.g., gas transportation and storage; electricity generation and transmission.

   a heavy fuel oil used to power ships, for electricity generation and for large-scale industrial use. It is often the residue from vacuum distillation blended with lighter components.

   (US) for electricity utilities, as determined by the North American Electric Reliability Corporation (Nerc), the business day typically begins at 6:00am for a 24-hour period. Holidays are also determined by Nerc and may be separate from US-designated holidays.

   the simultaneous purchase of an out-of-the-money strangle and sale of an at-the-money straddle. The buyer profits if the underlying remains stable, and has limited risk in the event of a large move in either direction.

   a gas contract where the buyer has the option to nominate the delivery requirements up to the predefined delivery capacity. The seller is obliged, under this type of contract, to deliver as requested, although limits are often built into the contract.