Glossary

Energy trade glossary

The terms used in oil, gas and fertiliser contracts and market reports, explained in plain language.

37 terms

API gravity: A measure of how heavy or light a petroleum liquid is compared with water, defined by the American Petroleum Institute. Crude above about 31° API is usually called light; below about 22° API, heavy.
Assay: A laboratory analysis of a crude oil’s physical and chemical properties, such as density, sulphur and the yield of each product on distillation. Refiners use it to value a grade.
Backwardation: A market structure in which prices for prompt delivery are higher than prices for later delivery. It usually signals tight current supply and discourages storage.
Benchmark: A widely traded and assessed price, such as Dated Brent, WTI or Dubai/Oman, against which physical cargoes are priced with a differential.
Bill of lading (B/L): The document issued by the carrier when cargo is loaded. It is a receipt for the goods, evidence of the contract of carriage and, in most trades, a document of title.
Biuret: An impurity formed when urea is heated during manufacture. High levels can harm sensitive crops, so contracts set a maximum biuret content.
Boil-off gas (BOG): LNG that evaporates during storage and shipping because heat enters the cargo tanks. It is often used as fuel by the vessel or re-liquefied.
CFR (Cost and Freight): An Incoterms® rule under which the seller pays the freight to the named destination port; risk passes to the buyer when the goods are loaded on board at origin.
CIF (Cost, Insurance and Freight): As CFR, but the seller also buys minimum marine insurance for the buyer’s benefit. Risk still passes on loading.
Contango: The opposite of backwardation: later delivery dates trade above prompt prices, which can make it profitable to store oil.
Crack spread: The difference between the price of crude oil and the products refined from it, such as gasoline and diesel. It is a rough indicator of refining margins.
Dated Brent: The price assessment for physical cargoes of North Sea crude loading in a forward window. The basket includes Brent, Forties, Oseberg, Ekofisk, Troll and WTI Midland. It is the most widely used reference for physical crude.
Demurrage: Compensation paid to the shipowner when a vessel is kept at the loading or discharge port beyond the agreed laytime.
Differential: The premium or discount, agreed in the contract, between the price of a cargo and its benchmark. It reflects quality, location and timing.
Documentary letter of credit (L/C): A bank’s undertaking to pay the seller once documents that comply with the credit’s terms are presented. Most are issued subject to the ICC’s UCP 600 rules.
Dubai/Oman: Price benchmarks for medium sour Middle East crude, widely used to price Gulf exports to Asia.
FOB (Free on Board): An Incoterms® rule under which the seller delivers the goods on board the vessel nominated by the buyer at the loading port; the buyer arranges and pays for the freight.
Henry Hub: The Louisiana pricing point for natural gas futures traded on NYMEX, and the main US gas benchmark.
Incoterms®: Standard trade terms published by the International Chamber of Commerce. They set out which party pays for transport, insurance and duties, and where risk passes from seller to buyer. The current edition is Incoterms® 2020.
Independent inspection: Measurement and testing of a cargo’s quantity and quality by an inspection company agreed by both parties, usually at the loading port.
JKM (Japan Korea Marker): The price assessment for spot LNG cargoes delivered to Japan, South Korea, China and Taiwan, and the main Asian spot LNG benchmark.
KYC (Know your customer): Checks that confirm a counterparty’s identity, ownership, authority to sign and sanctions status before doing business.
Laytime: The time allowed in a charter party for loading or discharging a vessel without extra payment. Time beyond it is charged as demurrage.
LNG (Liquefied natural gas): Natural gas cooled to about −162 °C, which reduces its volume about 600 times so it can be shipped by sea.
LPG (Liquefied petroleum gas): Propane, butane or a mixture of the two, kept liquid under moderate pressure or refrigeration.
Nomination: Formal notice of a vessel, quantity or loading dates, given by one party to the other under the contract’s timetable.
OPEC+: The group formed by the Organization of the Petroleum Exporting Countries and allied producers, including Russia, which coordinates production targets.
Prilled and granular urea: Two physical forms of urea. Prills are small spheres formed in a cooling tower; granules are larger and harder, which suits bulk handling and blending.
RON (Research Octane Number): A measure of a gasoline’s resistance to knocking in an engine. Common grades include RON 92 and RON 95.
SPR (Strategic Petroleum Reserve): Government-held emergency crude oil stocks. The US SPR is stored in salt caverns along the Gulf Coast of Texas and Louisiana.
Standby letter of credit (SBLC): A bank instrument that pays out if the applicant fails to perform its obligations. It is usually issued under the ISP98 or UCP 600 rules.
Sweet and sour crude: Crude with a low sulphur content, usually below about 0.5 %, is called sweet. Crude with more sulphur is sour and needs more processing.
TTF (Title Transfer Facility): The Dutch virtual gas trading point and Europe’s main natural gas benchmark.
UBO (Ultimate beneficial owner): The natural person who ultimately owns or controls a company, directly or through other entities.
Urea: A nitrogen fertiliser containing about 46 % nitrogen, made from ammonia and carbon dioxide. Most urea is produced from natural gas.
VLCC (Very Large Crude Carrier): A tanker able to carry about two million barrels of crude oil, the standard vessel for long-haul crude trades.
WTI (West Texas Intermediate): A light sweet US crude and the benchmark for NYMEX crude oil futures, delivered at Cushing, Oklahoma.

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