OTC COMMODITIES SWAPS
Introduction
Commodity swaps are one of the fastest growing products on the market and oil swaps in particular are very popular. The mechanics of oil swaps follow those in other swap markets. The big players continue to be the major oil companies and the large international banks, most of which have an interest rate swap capability. Maturities are most likely to be between one and five years, occasionally longer with quarterly or semi-annual resets. In Asia, most oil hedging is carried out using swaps, but in the USA more OTC options are transacted.
Definition
An agreement between two parties to exchange cash flows based on an agreed oil index price for a specified period at agreed reset intervals based on the average ...
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