Glossary: Commodity and Energy Terms
About This Glossary
This reference covers essential terms for understanding commodity and energy markets. Terms are alphabetized for quick lookup.
Backwardation: A futures curve condition where near-term contract prices exceed longer-dated contract prices, often signaling tight current supply or high immediate demand.
Basis: The difference between the spot price of a commodity at a specific location and the price of a related futures contract, reflecting local supply-demand conditions and transportation costs.
Benchmark: A standard reference price used to price transactions in a commodity market, such as Brent crude for international oil or Henry Hub for US natural gas.
Brent Crude: The primary international crude oil benchmark, based on light, sweet crude from the North Sea and traded on the Intercontinental Exchange (ICE).
CFTC (Commodity Futures Trading Commission): The US federal agency that regulates commodity futures, options, and swaps markets.
Contango: A futures curve condition where longer-dated contract prices exceed near-term prices, typically indicating adequate current supply and storage availability.
Convenience Yield: The implied benefit of holding physical inventory rather than a futures contract, reflecting the ability to meet unexpected demand or avoid supply disruptions.
Cost of Carry: The total cost of holding a physical commodity, including storage, insurance, financing, and any deterioration, used in futures pricing models.
Crack Spread: The price difference between crude oil and refined petroleum products (gasoline, diesel), representing the refining margin.
Delivery Month: The calendar month during which a futures contract expires and physical delivery can occur.
EIA (Energy Information Administration): The US Department of Energy agency that collects, analyzes, and publishes energy data, including weekly petroleum and natural gas inventory reports.
FERC (Federal Energy Regulatory Commission): The US federal agency that regulates interstate transmission of electricity, natural gas, and oil.
Futures Contract: A standardized agreement to buy or sell a specific quantity of a commodity at a predetermined price on a specified future date.
Futures Curve: The series of futures prices across sequential delivery months, showing the term structure of commodity prices.
Henry Hub: The primary US natural gas pricing point and delivery location for NYMEX natural gas futures, located in Louisiana.
Initial Margin: The deposit required to open a futures position, serving as a performance bond against potential losses.
LME (London Metal Exchange): The primary global exchange for industrial metals futures, including copper, aluminum, zinc, nickel, lead, and tin.
Maintenance Margin: The minimum account balance required to hold an open futures position; falling below triggers a margin call.
Mark-to-Market: The daily settlement process where futures positions are valued at current market prices and gains or losses are credited or debited to trader accounts.
NYMEX (New York Mercantile Exchange): A division of CME Group that lists energy and precious metals futures contracts, including WTI crude oil, natural gas, gold, and silver.
OPEC (Organization of the Petroleum Exporting Countries): An intergovernmental organization of major oil-producing nations that coordinates production policies to influence global oil prices.
OPEC+: An expanded coalition including OPEC members and other major oil producers (notably Russia), formed in 2016 to coordinate production levels.
Open Interest: The total number of outstanding futures contracts that have not been settled or closed, indicating market participation levels.
Position Limit: The maximum number of futures contracts a trader can hold in a commodity, set by regulators to prevent excessive speculation and manipulation.
Roll: The process of closing an expiring futures position and opening a new position in a later-dated contract to maintain exposure.
Roll Yield: The gain or loss from rolling futures positions, positive in backwardation (sell high, buy low) and negative in contango (sell low, buy high).
Spot Price: The current market price for immediate delivery of a commodity.
Storage Report: Weekly data releases showing inventory levels for commodities like crude oil and natural gas, published by the EIA and industry groups.
WTI (West Texas Intermediate): The primary US crude oil benchmark, a light, sweet crude delivered at Cushing, Oklahoma, and traded on NYMEX/CME.
This glossary is updated as new terms become relevant to commodity market discussions.