ARE138.midterm17.answers - ARE 138 Winter 2017 Midterm Exam...

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ARE 138 Winter 2017 Name: Midterm Exam You have 80 minutes for this exam, which has 80 points too. There are three main questions. In a subsection of a question, if you write “I don’t know”, you will receive 1 point. You may use your notes and copies of clippings and handouts. In contrast, no electronic devices are allowed. 1. (24 points total) Turn to pp. 2–3 of the Oilgram Price Report for December 16, 2015, specifically the article titled Bonney Light delays to weigh on diff.”. a) (5 points) What is “Dated Brent” as referred to in the article? “Dated Bent” refers to physical cargoes of crude oil that have been assigned specific dates for loading at off-shore oil platforms in the North Sea. [As these assignments are usually no more than a month ahead, Dated Brent is close in function to a spot market for those cargoes.] Dated Brent is a benchmark for other types of oil. b) (5 points) What is the price of Bonney Light in $/barrel? Be as precise as possible. On p. 21, in the first entry for West Africa, the midpoint price for Bonney Light is given as $38.525. c) (5 points) What does it mean “other Nigerian grades were assessed flat”? It means that the differential to the benchmark, namely forward Dated Brent, did not change from the day before. [Note the rightmost column in the West Africa part of p. 21, under the heading “Change”.] d) (9 points) The end of the article notes that some months earlier, Shell declared “force majeure on Bonney Light for seven days.” Which traders would have been affected by this declaration? Does this declaration imply that Bonney Light was no longer fungible? Shell [as in the huge oil company] operates the loading platform at the end of the Trans Niger Platform. By declaring force majeure, it was admitting that it could not fulfill the loading schedule previously announced. [Under standard contract law, Shell is not responsible for the non-performance.] Any traders who had charted tankers to load the expected oil would have been hurt, given that they would have had to pay demurrage under their charter contracts for the week’s delay. Similarly, any refiner needing that specific oil would have been hurt, just
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