Scenario Analysis
Analysis of the effects of possible alternative future movements in market variables on the value of a portfolio.

Many commodity markets are subject to an annual seasonal cycle. This cycle refers to the tendency of market prices to move in a given direction at certain times of the year. For example, heating oil prices tend to rise during the northern winter.

Settlement Risk
Settlement risk is the risk that arises when payments are not exchanged simultaneously. The simplest case is when a bank makes a payment to a counter party but will not be recompensed until sometime later; the risk is that the counter party may default before making the counter payment. In a commodity market, cash settlement will often occur 30 days after delivery of goods. The risk of default during that time is settlement risk.

Short Position
A position assumed when Traders sell an asset they do not own, leaving the trader exposed to a fall in market prices.


  • Gas losses in the transportation and distribution system
  • Gas volume lost the extractions of liquid gases and the removal of water and other impurities.

Skew is a measure of the asymmetry of the distribution. A perfectly symmetrical distribution has zero skew, whereas distribution with positive (or negative) skew is one where more observations lie above (or below) the mean.

Sour Crude
Crude oil containing a relatively high percentage of Sulphur by weight.

Sour Gas
Natural Gas with a high Sulphur content which requires treatment before use.

Spark Spread / Spark Arbitrage
The difference between the price of electricity sold by a generator and the price of the fuel used to generate it, adjusted for equivalent units.

Standard Deviation
Standard measure of the degree to which an individual value in a probability distribution tends to vary form the mean of the distribution. Indicates the probability of a variable or price falling within a certain band around the mean.

Stop-loss Limits
Pre-defined point at which a losing position is closed out.

Specific Gravity
The ratio of density of a liquid to the density of water as measured at 60 degrees Fahrenheit.

The opposite of hedging. The speculator holds a derivative position with no offsetting position in the underlying asset.

The price of a commodity for immediate delivery (see also physical and prompt).

Stochastic Process
An equation describing the probabilistic behaviour of a stochastic variable.

Stochastic Variable
A variable whose future path is uncertain.

Storage Cost
The cost of storing a commodity.

The combination of a put and a call option with the same expiration date and strike price. A buyer of a straddle hopes that the volatility of the underlying prices will increase, creating profit opportunities.

An options position combining the the purchase or sale of put and call options with the same expiration but different strike prices.

Stress Test
To test the impact of an extreme market event anon the value of a portfolio.

Strike Price
The price at which the underlying asset is bought or sold in the event that an option is exercised.

An agreement whereby a floating price is exchanged for a fixed price over a specified period. It is an off-balance-sheet financial arrangement that involves no transfer of physical oil; both parties satisfy their contractual obligations by a transfer of cash. The agreement defines the volume, duration and fixed reference price. Differences are settled in cash for specific periods monthly or quarterly.

Sweet Crude
Crude oil containing a relatively low percentage of Sulphur by weight.

Synthetic Option
An option created by trading the underlying asset.

Systematic Risk
Risk that cannot be diversified away (see also nonsystematic risk).

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