Mastering Derivatives Markets, 4th Edition

14

Commodity Derivatives

‘Commodity markets are driving the capital markets...’

Introduction

Exchange-traded energy derivatives

Exchange-traded futures contracts

Exchange-traded energy option contracts

OTC or ‘off-exchange’ energy derivatives

OTC option products

OTC oil swaps

INTRODUCTION

‘Commodity markets are driving the capital markets...’ – we hear this regularly from various market pundits. There is an obvious link between oil prices and foreign exchange generally and the value of the US dollar in particular; oil is priced by most producers in dollars.

However, currency relationships are very complex. In the short term, a weakening dollar does not affect supply and demand, but it does affect speculation and investment in oil futures ...