Risk Management
PENINSULA
STRUCTURED
PRODUCTS
Physical Operations in: Algeciras • Amsterdam • Antwerp • Barcelona • Gibraltar
Houston • Las Palmas • Los Angeles Long Beach • Malaga • Malta • New Orleans
Panama • Rotterdam • Tenerife
FROM TOTAL PROCUREMENT TO
GLOBAL AND REGIONAL CONTRACTS
This information is strictly factual in nature. Peninsula is not giving, and it is not authorised to give, any advice or
recommendation in respect of any particular financial product. In particular, this information is not intended to be an
invitation or an inducement to enter into any particular financial product with Peninsula, and customers are required to
make their own assessment of the suitability of any particular financial product.
PENINSULA
STRUCTURED PRODUCTS
BENEFITS OF HEDGING:
•
Commodities are amongst the most volatile of asset classes
•
Effective price risk management can reduce earnings volatility by shielding buyers and sellers from sudden
and unanticipated market movements
•
Volatile fuel prices can significantly impact profit margins and the ability to duly service debt; the proper
management of price volatility can help to improve budgeting, creditworthiness and the overall balance sheet
PHYSICAL STRUCTURED
PRODUCTS
FFP Fixed Forward Price
Lock in a specific quantity to be lifted during an
agreed period at a fixed price level.
MPFFP Multiple Port Fixed Forward Price
Lock in a specific quantity to be lifted during an
agreed period in a base port at a fixed price level,
with the option to lift in multiple ports with a fixed
or floating differential to base port.
FPF Floating Price Formula
Lock a differential to the port’s main underlying
index with flexible pricing during an agreed period.
APF Alternative Price Formula
Price a product using an uncommon underlying
index to the port/region.
OB Open Book
For certain customers, Peninsula manages bunker
requirements for an agreed period at an agreed
price/rate.
Peninsula is not giving investment advice and no fiduciary duty arises by entering into any of these financial products.
Customers are required to make their own assessment of the suitability of any particular financial product.
FINANCIALLY SETTLED
DERIVATIVES
DERIVATIVES Swaps
Transact fuel oil and gasoil swaps with Peninsula
with no restrictions on quantity and tenor within
the pre-set limits.
S-to-P Swaps to Physical
Transact fuel oil and gasoil swaps with Peninsula
and agree a premium/discount to convert a paper
transaction into a physical delivery.
Financial Derivatives
•
Also known as paper hedges
•
Includes
•
Fuel Swaps
•
Gasoil Swaps
•
Separate from physical supply contracts
•
Financial settlement of derivatives offsets price
movements on physical fuel
•
Flexibility
•
Potential margin calls and accounting issues should
be taken into consideration
TYPES OF FUEL HEDGES
Physical Hedging
•
Also known as Structured Products; integrated
into physical supply contracts
•
Includes
•
FFP
•
MPFFP
•
FPF
•
APF
•
Easy to administer and track
•
Generally suitable for rateable monthly volumes
FFP
FIXED FORWARD PRICE
Lock in a specific quantity to be lifted during an
agreed period at a fixed price level.
INTRODUCTION
An option for known voyage and commitment.
CONCLUSION
•
No basis risk
•
Invoice is issued with the original agreed price
•
Utilises existing credit line
•
No regulatory reporting requirements
•
Flexibility to cash settle the existing FFP
•
Margining can be applied depending on tenor and quantity
INQUIRY: FEB-20
1. Period: Apr-20
2. Qty & Fuel: 1kt VLSFO
3. Port: Gibraltar
AGREEMENT REACHED
1. 2-3 liftings in Gibraltar
2. Apr-20 1,000MT at $510
PPG CONFIRMS THE DEAL
1. Deal confirmed in our system
2. Hedging Desk executes hedge
GOES THROUGH CREDIT, HEDGING
AND SUPPLY TEAM
1. Credit gives the green light
2. Hedging Desk reverts with a price curve
3. Supply Team confirms the delivery schedule
OFFERS SHOWN
1. Gibraltar Apr-20 1,000Mt at $510
2. ICE gasoil+5 for over-lifts. (optional)
FOLLOW UP ON DEAL
1. Buyer to revert with vessel schedule and
quantities for delivery in Apr-20.
2. Reconcile any over/under-lifts
HOW IT WORKS
•
Buy fuel at a pre-agreed price for a specific volume
within a time-period, removing uncertainty in fuel
prices
•
Requires a predetermined monthly volume
commitment
•
Requires a rateable lifting schedule
•
Any over-lifts or under-lifts are reconciled after
each calendar month
•
Over-lifts are priced at the agreed floating
formula
•
Under-lifts are invoiced at the price difference to
the market multiplied by underlifted volume
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3
6
4
5
Peninsula is not giving investment advice and no fiduciary duty arises by entering into any of these products.
Customers are required to make their own assessment of the suitability of any particular financial product.
MPFFP
MULTIPLE PORT FIXED FORWARD
PRICE
Lock in a specific quantity to be lifted during
an agreed period in multiple ports at a fixed
price level.
INTRODUCTION
Works like an FFP but offers the ability to
lift at different ports. Lock in a price with
port flexibility.
CONCLUSION
•
An MPFFP offers more flexibility than FFP
•
No basis risk
•
Invoice is issued with the original agreed price
•
Utilises existing credit line
•
No regulatory reporting requirements
•
Flexibility to cash settle the existing FFP
•
Margining can be applied depending on tenor and quantity
INQUIRY: FEB-20
1. Period: Q2-20
2. Qty & Fuel: 5kt VLSFO
3. Port: Rotterdam and/or Malta
and/or Las Palmas
AGREEMENT REACHED
1. 4-5 liftings in agreed ports
2. Q2-20 5,000MT at $470 /$508
PPG CONFIRMS THE DEAL
1. Deal confirmed in PPG system
2. Hedging Desk executes hedge
GOES THROUGH CREDIT, HEDGING
AND SUPPLY TEAM
1. Credit gives the green light
2. Hedging Desk reverts with a price curve
3. Supply Team confirms the delivery schedule
OFFERS SHOWN
1. Rotterdam and/or Malta and/or Las Palmas
Q2-20 5,000Mt at $470 in Rotterdam,
$508 in Malta/Las Palmas
2. ICE Gasoil -38 for Rotterdam over-lifts
or ICE Gasoil flat for Malta/Las Palmas.
(optional)
FOLLOW UP ON DEAL
1. Buyer to revert with vessel schedule and
quantities for delivery in Q2-20.
2. Reconcile any over/under-lifts
HOW IT WORKS
•
Buy fuel at a pre-agreed price for a specific volume
within a time-period, removing uncertainty in fuel
prices, with the option to lift in multiple ports
•
Requires a minimum monthly volume commitment
•
Requires a lifting and port schedule
•
Any over-lifts or under-lifts are reconciled after
each calendar month
•
Over-lifts are priced at the agreed floating price
formula
•
Under-lifts are invoiced at the price difference to
the market multiplied by underlifted volume
1 2
3
6
4
5
Peninsula is not giving investment advice and no fiduciary duty arises by entering into any of these products.
Customers are required to make their own assessment of the suitability of any particular financial product.
FPF
FLOATING PRICE FORMULA
Lock a differential to the port’s main
underlying index with flexible pricing during
an agreed period.
INTRODUCTION
Guarantee bunker supply volume in a port
while following market fluctuations.
Flexible as it doesn’t necessarily require
a fixed volume.
INQUIRY: FEB-20
1. Period: Apr-20
2. Qty & Fuel: 1kt VLSFO
3. Port: Gibraltar
4. Pricing Period: DON
AGREEMENT REACHED
1. 2-3 liftings in Gibraltar
2. ICE Gasoil +5 $/tn basis DON
PPG CONFIRMS THE DEAL
1. Deal confirmed in our system
2. Hedging Desk includes deal in pricing calendar
GOES THROUGH CREDIT, HEDGING
AND SUPPLY TEAM
1. Credit gives the green light
2. Hedging Desk reverts with a price differential
3. Supply Team confirms the delivery schedule
OFFERS SHOWN
1. ICE Gasoil + 5 $/tn basis DON
2. (Flexibility to convert to fixed price)
FOLLOW UP ON DEAL
1. Follow up upon nominations
2. Reconcile the final buy price after the pricing
period settles
HOW IT WORKS
•
Price a product against an underlying index at
a fixed differential for a specific time period
•
Does not require a minimum monthly volume
commitment
•
The pricing period is flexible
•
Pricing basis date of nomination
•
Pricing basis date of delivery
•
Pricing whole month average
•
Trigger pricing
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3
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4
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CONCLUSION
•
Buy price will follow market fluctuations
•
Invoice is issued with the calculated price after the pricing period has expired
•
No Regulatory reporting requirements
•
Flexibility to convert the Floating Price Formula into an FFP
•
No margining requirement
•
Credit line may be affected by market volatility
Peninsula is not giving investment advice and no fiduciary duty arises by entering into any of these products.
Customers are required to make their own assessment of the suitability of any particular financial product.
APF
ALTERNATIVE PRICE FORMULA
Price a product using an uncommon underlying
index to the port/region.
INTRODUCTION
Price a product against a preferred underlying.
Guarantee bunker supply volume in a port while
following market fluctuations.
INQUIRY: FEB-20
1. Period: Q2-20
2. Qty & Fuel: 1kt 380cst
3. Port: Rotterdam
4. Price against: MOPS 380
5. Pricing Period: DON
AGREEMENT REACHED
1. 2-3 lifting in Rotterdam
2. MOPS 380 - 10 $/tn basis DON
PPG CONFIRMS THE DEAL
1. Deal confirmed in our system
2. Hedging Desk executes hedge
3. Hedging Desk includes deal in pricing
calendar
GOES THROUGH CREDIT, HEDGING
AND SUPPLY TEAM
1. Credit gives the green light
2. Hedging Desk reverts with a price differential
3. Supply Team confirms the delivery schedule
OFFERS SHOWN
1. MOPS 380 - 10 $/tn basis DON
2. (Flexibility to convert to fixed price)
FOLLOW UP ON DEAL
1. Follow up upon nominations
2. Reconcile the final buy price after the pricing
period settles
HOW IT WORKS
•
Guarantee a differential against a preferred
underlying index for a specific time period
•
Does require a minimum monthly volume
commitment
•
The pricing period of the price formula is flexible
•
Pricing basis date of nomination
•
Pricing basis date of delivery
•
Pricing whole month average
•
Trigger pricing
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3
6
4
5
CONCLUSION
•
An Alternate Price Formula allows a shift in
baseline price formula from one index to another
preferred index
•
Increase pricing optionality and reduce volatility
•
Can capture favourable price spreads between
markets/indices
•
May improve correlation between budget and
derivative hedges
•
Consolidate purchases onto preferred indices and
eliminate regional basis risk
•
Identify opportunities even if flat price is
not compelling
•
Requires minimum monthly volume
•
Month-end reconciliation
Peninsula is not giving investment advice and no fiduciary duty arises by entering into any of these products.
Customers are required to make their own assessment of the suitability of any particular financial product.
OPEN BOOK –
PHYSICAL
PROCUREMENT
With increasing market fluctuation, budget
certainty can be difficult in the current
volatile climate.
INTRODUCTION
Peninsula can manage the Physical procurement
of Fuel or Gasoil. We have the ability to monitor
risk and market developments and act quickly
where necessary.
HOW IT WORKS
•
During periods of extreme downside/upside
risk through fundamental or technical reasons,
Peninsula can provide the 3 best quotes from local
vendors or our own barrels
•
Peninsula will increase the offer price by an agreed
fee (as a management fee or a minimum lump-sum),
consequently determining the Open Book price
•
This agreed Open Book Price will be sent on all
confirmations and/or invoices
•
Procurement invoices available upon written
request
•
The Open Book Price can be a floating differential
with a trigger date to be agreed
Peninsula is not giving investment advice and no fiduciary duty arises by entering into any of these products. Customers are required to make
their own assessment of the suitability of any particular financial product.
DERIVATIVES
SWAPS
Transact fuel oil and gasoil swaps with
Peninsula with no restrictions on quantity and
tenor within the pre-set limits.
INTRODUCTION
Can hedge against market fluctuations by
buying the underlying paper direct from
Peninsula. Flexibility to float the inquiry
in the market at any point in time.
CONCLUSION
Benefits
•
Fast onboarding process (long form)
•
No need to setup clearing account
•
Already existing relationship for credit line
•
Easy trade process
•
Tailored reports
•
Daily/weekly/monthly P&L
•
Minimal setup cost
•
Range of tenors available (bullet, weekly)
Drawbacks
•
Basis risk for physical delivery
•
Margin call management
•
More administrative work required
INQUIRY: FEB-20
1. Customer
2. Period: Jun-20
3. Qty & Underlying: 1kt Sing gasoil
10 ppm
4. Bid/Offer: BUY
AGREEMENT REACHED
1. BUY 1,000Mt Jun-20 Sing gasoil
10 ppm at $67.5
PPG CONFIRMS THE DEAL
1. Deal confirmed in our system
2. Hedging Desk executes trade
3. Hedging Desk includes deal in price
exposure report
GOES THROUGH CREDIT AND HEDGING
1. Credit gives the green light
2. Hedging Desk reverts with a price curve
3. Final Price: $67.50
OFFERS SHOWN
1. 1,000Mt Jun-20 Sing gasoil 10 ppm
OFFER at $67.5
2. Brent ref $56.8
FOLLOW UP ON DEAL
1. PPG provide a weekly/monthly P&L report
2. Follow up on margin calls
3. Cash settlement after expiry
HOW IT WORKS
•
A swaps agreement with Peninsula allows for
utilisation of the credit line
•
Buy or sell any quantity with flexible tenors
•
Post trade admin is done by Peninsula (including
weekly/monthly report)
1 2
3
6
4
5
Entering into derivative contracts can result in losses being incurred on the derivative. Peninsula is not giving investment advice and no fiduciary
duty arises by entering into any of these financial products. Customers are required to make their own assessment of the suitability of any
particular financial product.
S → P
SWAPS TO PHYSICAL
Transact fuel oil and gasoil swaps with
Peninsula and switch them for a physical
delivery at a pre-set premium for a specific
delivery period.
INTRODUCTION
Can hedge against market fluctuations by
buying the underlying paper direct from
Peninsula. Flexibility to float the inquiry in
the market at any point in time. Flexibility to
convert the swap into a physical delivery.
CONCLUSION
Benefits
•
Fast onboarding process (long form)
•
Already existing relationship (credit)
•
Tailored reports
•
Daily/weekly/monthly P&L
•
Range of tenors available (bullet, weekly)
•
Flexibility to choose the delivery month before
the swap starts to price
•
Flexibility to roll the swaps forward to
accommodate physical delivery
Drawbacks
•
More administrative work required
•
Margin call management
INQUIRY: FEB-20
1. Period: Jun-20
2. Qty & Underlying: 10 kb Sing gasoil 10 ppm
3. Bid/Oer: BUY
4. Interest on S to P for delivery in
Los Angeles in Jun 20
AGREEMENT REACHED
1. BUY 10,000 kb Jun-20 Sing
gasoil 10 ppm at $67.5/bbl
2. S to P diff agreed at + 50 $/tn
PPG CONFIRMS THE DEAL
1. Deal confirmed in our system
2. Hedging Desk executes trade
3. Hedging Desk includes deal in price
exposure report
GOES THROUGH CREDIT AND HEDGING
1. Credit gives the green light
2. Hedging Desk reverts with a price curve
3. Final Price: $67.5/bbl
OFFERS SHOWN
1. 10,000 kb Jun-20 Sing gasoil 10 ppm
OFFER at $67.5/bbl
2. Brent ref 56.8
3. S to P: Los Angeles Jun-20 delivery at Jun
Sing gasoil 10ppm + 50 $/tn (this can be
decided at a later stage)
FOLLOW UP ON DEAL
1. PPG provides a weekly/monthly P&L report
for the swap
2. Follow up on margin calls
3. a) Cash settlement for paper
b) Nominate vessel and port to take
physical delivery
HOW IT WORKS
•
A swaps agreement with Peninsula allows
utilisation of the existing credit line
•
Buy or sell any quantity with flexible tenors
•
Physical delivery premiums/discounts on top of a
transacted swaps are agreed for specific delivery
periods
•
Request a differential premium/discount to any
port basis any underlying swap
1 2
3
6
4
5
Entering into derivative contracts can result in losses being incurred on the derivative. Peninsula is not giving investment advice and no fiduciary
duty arises by entering into any of these financial products. Customers are required to make their own assessment of the suitability of any
particular financial product.
PENINSULA
STRUCTURED PRODUCTS
[email protected]eninsulapetroleum.com
Physical Operations in: Algeciras • Amsterdam • Antwerp • Barcelona • Gibraltar
Houston • Las Palmas • Los Angeles Long Beach • Malaga • Malta • New Orleans
Panama • Rotterdam • Tenerife
